Central bank digital currency and monetary policy
The IMF’s Dong He published an update on ongoing work being undertaken by the IMF’s Monetary and Capital Markets Department on the implications of central bank digital currency (CBDC) for monetary policy. He argued that universally convertible and interoperable CBDC could bolster the role of central bank money as both the ultimate settlement asset and the unit of account, and preserve the central bank’s capacity to implement monetary policy effectively in the digital age. An important challenge will be to figure out how the demand for reserves would be affected by the introduction of CBDC. The operational framework may need to be reconfigured to deal with increased volatility in the demand for reserves, and central bank capital buffers may also need to be revisited if balance sheet materially increases in size and in financial risks because of CBDC adoption. An interest-bearing CBDC could amplify the passthrough from policy interest rates to broader monetary conditions, albeit at the risk of disintermediating banks if the interest rate is set too high. But even a non-interest-bearing CBDC could enhance the channels of monetary policy transmission, although the magnitude of this effect is anticipated to be modest and heavily reliant on country characteristics, such as the capacity of CBDC to advance financial inclusion or diminish the appeal of currency substitution. [Read more at ResearchGate]
CPMI work program includes tokenization, CBDC
The Committee on Payments and Market Infrastructures (CPMI) published its work program and strategic priorities for its 2024/25. The program’s key themes include the enhancement of cross-border payments, with a particular emphasis on the interlinking of fast payment systems, and digital innovations in payments, clearing and settlement. The latter will include tokenization in the context of money and payments, functionality of cross-border central bank digital currencies and central bank collaboration, and multicurrency and asset-linked stablecoin arrangements. [Read more at the Bank for International Settlements]
Upcoming Speaking Engagements:
- CBDC Conference, Istanbul, September 10-12. The conference will offer representatives of central banks, commercial banks, technology providers, policy makers and academics the perfect platform to learn about the latest CBDC developments, exchange ideas with experts and peers. [Find out more and register here][Central bank delegates may be eligible for free registration (email registration@cbdc-conference.com to find out more)]
- Digital Currency Conference, London, September 23-24. The conference will bring together policymakers, regulators, and technology and innovation experts to network and discuss all aspects of digital currencies. And enter the KiffmeisterDCC code at registration to get a 20% discount! [Find out more and register here]
And 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 john@kiffmeister.com.
