Central Bank Digital Currency: One, Two or None?

15 Pages Posted: 16 Oct 2019

Date Written: October 2019


This paper considers the motives, modalities, and possible consequences of central bank digital currency (CBDC) issuance. It starts by drawing a distinction between a wholesale CBDC (WCBDC), accessible only to financial intermediaries, and a retail CBDC (RCBDC), accessible to the general public. The issuance of one could be dissociated from the other, implying the possibility of one, two, or no CBDC(s). The main motive for issuing a WCBDC could be to promote financial innovation and to lower transactions costs using a blockchain. The motives for issuing a RCBDC could be to supply the public with a digitalised monetary instrument without any liquidity or credit risks, easy to access and cheap to use. A CBDC would be created or destroyed only by the central bank and would be issued and exchanged at par with other forms of central bank money (banknotes and reserves). A WCBDC would have to be issued on a permissioned rather than a public blockchain. It would also have to be remunerated to keep reserves and the WCBDC at par. A RCBDC would not necessarily use the blockchain and would most likely involve intermediaries. The issuance of a CBDC would represent a supply shock, which would support economic growth in the medium to long run and could transitorily weigh on prices. One consequence of issuing a WCBDC could be the development of an intraday market, which could in turn lead to the adoption of a real-time monetary policy. Furthermore, the issuance of a RCBDC could put a floor to bank deposit rates and, if it is remunerated, raise them. If the RCBDC were not remunerated, the effective lower bound would be raised to zero and the effectiveness of asset purchases by the central bank could be diminished. If it were, the interest and exchange rate channels should be strengthened. The remuneration of the RCBDC would thus seem to create a trade-off between the effectiveness of monetary policy and the cost of bank intermediation.

Keywords: Central Bank, Currency, Digitalisation, Financial Stability, Monetary Policy

JEL Classification: E40, E42, E52, E58

Suggested Citation

Pfister, Christian, Central Bank Digital Currency: One, Two or None? (October 2019). Banque de France Working Paper, October 2019, WP # 732 , Available at SSRN: https://ssrn.com/abstract=3470143 or http://dx.doi.org/10.2139/ssrn.3470143

Christian Pfister (Contact Author)

Banque de France ( email )


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