Fintech Notes

Implications of Central Bank Digital Currency for Monetary Operations

By Tansaya Kunaratskul, Andre Reslow, Manmohan Singh

October 4, 2024

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Tansaya Kunaratskul, Andre Reslow, and Manmohan Singh. "Implications of Central Bank Digital Currency for Monetary Operations", Fintech Notes 2024, 007 (2024), accessed November 6, 2025, https://doi.org/10.5089/9798400289019.063

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Summary

This Fintech Note aims to analyze how the issuance of central bank digital currency (CBDC) could affect monetary operations, which include central banks managing the demand and supply of reserves to achieve a desired stance of monetary policy. The note outlines three scenarios: CBDCs substituting cash, commercial bank deposits, and reserves, with implications varying based on design features and market developments. It discusses how these scenarios influence balance sheets and reserves, potentially drawing short-term interest rates away from the policy target and complicating liquidity forecasting. Furthermore, the note shows how central banks could calibrate monetary operations such as engaging in a fine-tuning operation and provide additional reserves on demand to ensure that central banks can maintain their monetary policy stance. Finally, careful design of CBDCs, such as setting criteria for access, holding quantity, and remuneration, can mitigate adverse effects on monetary operations.

Subject: Central Bank digital currencies, Central banks, Commercial banks, Financial institutions, Financial services, Monetary base, Monetary operations, Money, Short term interest rates, Technology

Keywords: Bank of England omnibus account, CBDC, CBDC demand, Central Bank digital currencies, Central bank digital currency, Central bank digital currency design, Commercial banks, Design choice, Digital money, Global, Handbook chapter, IMF FINTECH note 2024/007, Monetary base, Monetary operations, Monetary policy, Short term interest rates

Publication Details

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