## Digital Money and Central Banks Balance Sheet

_IMF Working Papers, October 28, 2022_

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## Bibliographic details
- Authors: Adrian Armas, Manmohan Singh
- Published: October 28, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400224072.001

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### Overview
- Title: Digital Money and Central Banks Balance Sheet
- Authors: Adrian Armas, Manmohan Singh
- Publication type: IMF Working Papers
- Date: October 28, 2022
- Pages: 29
- Volume: 2022
- Issue: 206
- Series: Working Paper No. 2022/206
- Stock No: WPIEA2022206
- DOI: https://doi.org/10.5089/9798400224072.001
- ISBN: 9798400224072
- ISSN: 1018-5941

### Key findings and analytical focus
- Digital money represents a logical step in continuous technological advancement in payment systems.
- Central banks are reviewing their conduct of monetary operations in light of the new shape of financial markets and systems.
- The impact of digital money depends on the type of money substitution by digital money.
- The paper examines several substitution cases where currency in circulation (CiC) and bank deposits may be replaced by digital money such as CBDC or other e-money, and the implications for the central bank balance sheet.
- Remuneration of CBDC, if aligned to a new objective, could potentially amplify the effect on the interest rate channel of monetary policy.

### Detailed considerations on substitution and balance sheet impacts
- Substitution scenarios analyzed include:
  - Substitution of CiC (currency in circulation) by digital money.
  - Substitution of bank deposits by digital money.
  - Mixed cases where both CiC and bank deposits are affected by adoption of CBDC or other forms of e-money.
- Balance sheet implications emphasized:
  - Changes in central bank liabilities composition when digital money replaces CiC or bank deposits.
  - Potential shifts in monetary base (M0) composition and seigniorage implications.
  - Interaction with central bank holdings of Treasury bills and bonds, and central bank FX positions, as part of balance sheet adjustment dynamics.
- Monetary policy channel effects:
  - Remuneration on CBDC could alter the interest rate transmission mechanism.
  - If remuneration is aligned to a new objective, the interest rate channel of monetary policy could be amplified.

### Policy implications and considerations for central banks
- Central banks need to reassess conduct of monetary operations given changes in the payments landscape driven by digital money.
- Design choices for CBDC and other e-money (including whether to remunerate) are central to determining macroeconomic and balance-sheet outcomes.
- Considerations include:
  - The extent and type of substitution (CiC vs. bank deposits).
  - Impacts on seigniorage and central bank liabilities.
  - Interaction with financial institutions and the broader financial system.
- The paper positions these design and operational questions as critical for shaping monetary policy effectiveness in a digital-money environment.

### Subject areas and keywords
- Subjects: Bank deposits, Central Bank digital currencies, Currencies, Digital currencies, Financial institutions, Financial services, Money, Technology, Treasury bills and bonds
- Keywords: bank deposits, Caribbean, CBDC, central bank balance sheet, Central Bank digital currencies, central bank FX, central bank liability, central bank of Brazil, Currencies, currency-in-circulation, Digital currencies, digital money, dollarization level, Fiat currency, Global, impact of digital money, money base (M0), seigniorage, Treasury bills and bonds, unit of account

*IMF Working Paper No. 2022/206, October 28, 2022.*

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_Source: https://www.imf.org/en/publications/wp/issues/2022/10/28/digital-money-and-central-banks-balance-sheet-524987_