Expected macroeconomic effects of issuing a retail CBDC in Colombia
Banco de la República (Banrep) published a working paper that assessed the need for and potential consequences of introducing a retail central bank digital currency (CBDC) in Colombia. Based on a review of the CBDC literature, it concluded that there is not currently a convincing case, but this conclusion does not exclude the possibility that one of these might justify the issuance of the retail CBDC in the future. That could be the case under a sudden popularization of unregulated stablecoins or a retail CBDC issued by another country, which could reduce the transmission of monetary policy, lead to a fragmentation of the payment system, and represent potential risks to financial stability. However, the paper stressed that the central bank has not taken a final decision on CBDC issuance, instead aiming to roll out a fast payment system by 2025. [Read more at the Banrep]
Banco Central do Brasil clarifies doubts about Drex
Banco Central do Brasil (BCB) published an FAQ on its under-development Drex CBDC. “Drex will bring more speed, practicality, and lower cost to various contractual and financial transactions… In the same way that Pix – the Brazilian instant payment ecosystem – has democratized access to payment services, Drex arrives to democratize access to financial services, such as credit, investment and insurance.” Programmability through smart contracts on distributed ledger technology (DLT) networks will be a key part of Drex’s platform. In the current testing phase, Drex is being developed on Hyperledger Besu. [Read more at the BCB]
Know your (holding) limits: CBDC, financial stability and central bank reliance
The European Central Bank (ECB) published a paper that analyzed the impact of the introduction of a digital euro on the ECB and commercial bank balance sheets, based on a theoretical model applied to Q3 2021 balance sheet data from over 2,000 euro area banks. It found that the impact depends on i) the number and speed of deposit withdrawals, ii) the liquidity available within the banking system at the time of the digital euro introduction, iii) the liquidity risk preferences of the markets and supervisors, iv) the bank’s business model, and v) the functioning of the interbank market. The paper found that a €3,000 digital euro holding limit per person, would have been successful in containing the impact on bank liquidity risks and funding structures and on the Eurosystem balance sheet, even in extremely pessimistic scenarios. [Read more at the ECB]
Coinbase wins approval to offer crypto futures trading in US
Coinbase has secured approval by the National Futures Association (NFA), a self-regulatory organization designated by the Commodity Futures Trading Commission (CFTC), to offer crypto futures to U.S. retail customers. The approval makes Coinbase the first crypto-focused platform in the U.S. to offer regulated and leveraged crypto futures alongside traditional spot trading, according to its announcement. [Read the Coinbase announcement here]
The Düsseldorf Institute for Competition Economics (DICE) published a paper that investigates the macroeconomic effects of different retail CBDC regimes in a New Keynesian model with a heterogeneous household sector. Generally, it finds that the introduction of a retail CBDC increases economy-wide utility as it allows higher consumption. Moreover, the shock absorption capability increases in an economy with retail CBDC. This particularly applies to the case when the central bank uses the retail CBDC as a monetary policy instrument. By adjusting the maximum amount of retail CBDC, the central bank can stabilize prices more effectively after adverse shocks. However, this stabilization implies distributional effects between households. [Download the paper at EconStor]
*For those interested in intra-day updates, check out my searchable Diigo Fintech developments database, which is also a good place to go to query for past developments: https://www.diigo.com/user/kiffmeister/ART.
Kiffmeister’s central bank digital currency monthly monitor
Just a reminder that I produce a monthly digest of central bank digital currency (CBDC) developments exclusively for the official sector. So (only) if you work at a central bank, ministry of finance or international financial institution (e.g., the BIS, IMF, OECD, World Bank) and who would like to receive it by email on the first business day of every month, please DM me on LinkedIn or email me at chronicles@kiffmeister.com.
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