Implications of retail CBDCs for monetary policy transmission
The IMF published a paper that analyzes the impact of retail central bank digital currency (CBDC) on financial conditions and monetary policy transmission. In general, it finds that the impacts are expected to be relatively small in normal times but can be more significant in a low interest rates environment and when there is financial market stress. CBDC could lead to increased financial inclusion which could loosen financial conditions and strengthen monetary policy transmission. On the other hand, increased competition for bank deposit funding, increased wholesale funding, and lower bank profits would tighten financial conditions. Of course, in jurisdictions with currencies that are pegged to another jurisdiction’s, there is little to no ability to conduct independent monetary policy, so the impact of retail CBDC issuance is expected to be minimal. [Read more at the IMF]
CBDC design choices and capital flow management measures
The IMF published a paper that looks at how capital flow measures (CFMs) could be implemented with CBDC, and what benefits, risks and complexities could arise. There are several implications of the analysis. First, CBDC ecosystems should generally be designed such that they can accommodate the introduction of CFMs. Second, thanks to the programmability of the payment infrastructure given by the new digital technologies, certain CFMs could likely be implemented more efficiently and effectively with CBDC compared to the traditional system. Third, implementing CFMs requires central banks to collaborate on practices and standards. Finally, CFMs on CBDC need to operate alongside traditional CFMs. [Read more at the IMF]
Citi unveils tokenized deposits for institutional trade, cash
Citibank launched two “Citi Token Services” digital asset solutions that target institutions. One is a pilot for blockchain-based tokenized deposits, enabling organizations to move money between Citi branches worldwide and 24/7. The other is a trade application that uses smart contracts to trigger instant payments using tokenized deposits. Citi Token Services is separate, but complements, the Citibank-founded Regulated Liability Network (RLN), a multi bank collaboration for digital assets, tokenized deposits and CBDCs. [Read more at Ledger Insights]
*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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