Tokenised Deposits, WCBDC and the Central Bank’s Liquidity Management (Norges Bank)
Norges Bank published a paper that analyzes how tokenized bank deposits and wholesale central bank digital currency (WCBDC) interact with central bank liquidity management under different reserve regimes and settlement designs. They model four configurations combining scarce versus ample reserves with settlement either in traditional reserves via the real-time gross settlement (RTGS) system or in WCBDC on a ledger, showing that liquidity frictions arise mainly when reserves are scarce and tokenized payments can alter banks’ reserve or WCBDC positions close to RTGS cut-off (see table below). This matters because late-in-the-day tokenized flows can force abrupt recourse to standing facilities, complicate overnight redistribution, and impair short-term rate control and monetary policy implementation, particularly in corridor or quota systems. Policy responses include deferred settlement for tokenized deposits settled in reserves and time windows or design tweaks for WCBDC activity. [Norges Bank]
Are Stablecoins and Bank Deposits Substitutes? (SSRN)
Rashad Ahmed (Anderson Institute for Finance and Economics) and Iñaki Aldasoro (BIS) posted a paper that analyzes U.S. weekly data from 2019–2025 to test whether deposit rates and reserve‑backed stablecoin holdings are substitutes. They find that higher demand deposit rates significantly slow stablecoin market capitalization growth, exploiting a nonlinear deposit‑rate pass‑through “kink” above a 3% federal funds rate, yielding effects about three times larger. This suggests bank funding conditions and monetary policy transmission now extend into stablecoin markets, with stronger substitution for USDC than USDT, aligning with USDC’s tighter links to U.S. users, and no comparable effect for bitcoin. The findings suggest that deposit‑rate regulation, the design of stablecoin regimes, and the stance of monetary policy can reallocate liquidity between banks and USD stablecoins, although identification relies on a single high‑rate episode and aggregate data that leave user‑level motives and heterogeneity across institutions unresolved. [SSRN]
FYI I produce a monthly digest of digital fiat currency (DFC) developments exclusively for the official sector (e.g., central banks, ministries of finance and international financial institution (e.g., the BIS, IMF, OECD, World Bank)) plus academics and firms that are active in the DFC space (commercial banks, technology providers, consultants, etc.). (DFCs include central bank digital currency (CBDC), stablecoins and tokenized deposits.) It goes out via email on the first business day of every month, and if you’re interested in being on the mailing list, please email me at john@kiffmeister.com.
