The introduction of a central bank digital currency (CBDC) allows the central bank to engage in large-scale intermediation by competing with private financial intermediaries for deposits. Yet, since a central bank is not an investment expert, it cannot invest in long-term projects itself, but relies on investment banks to do so. We derive an equivalence result that shows that absent a banking panic, the set of allocations achieved with private financial intermediation will also be achieved with a CBDC. During a panic, however, we show that the rigidity of the central bank’s contract with the investment banks has the capacity to deter runs.
Depositors internalize this feature ex-ante, and the central bank arises as a deposit monopolist, attracting all deposits away from the commercial banking sector. However, looking ahead, we will see that to achieve a city of future it will be mandatory to anticipate an infrastructure composed of Law and Technology, which revises the traditional models of governance, law, and regulations, and mitigates the pertinent risks by rewriting history. There are a large and diverse number of potential reasons why central banks are investigating CBDCs, among them we will see that the replacement of physical currency is one of the milestones of this century for the city of the future. This paper examines the factors that make cash ‘sticky’ in the increasingly digitised Kenyan financial landscapes. On the one hand, it discusses the mismatch between assumptions implicit in the financial inclusion discourse and ideas of saving, accumulation and money enshrined in local financial practices, and provides an overview o f the current digital payment situation in Kenya, in terms o f strategies and data. On the other hand, it draws insights from industry efforts in which industry expectations are tested against a background shaped by the dominance o f cash and traditional financial institutions.
Digital currencies have attracted strong interest in recent years and have the potential to become widely adopted for use in making payments. Public authorities and central banks around the world are closely monitoring developments in digital currencies and studying their implications for the economy, the financial system and central banks. One key policy question for public authorities such as a central bank is whether or not to issue its own digital currency that can be used by the general public to make payments. This paper proposes a framework for assessing why a central bank should consider issuing a digital currency and how to implement it to improve the efficiency of the retail payment system. As an increasing number of central banks further their research and planning efforts in CBDC, IADI members are encouraged to intensify their understanding of the potential impact of the introduction of a CBDC in their own as well as in other jurisdictions. To assess the potential impact of a CBDC, a sound understanding of operating models and design features is crucial.
More than allowing for meddling with money, a CBDC may enable meddling with human free will, posing grave threats to the preservation of freedom. But what if every single person in a country had a digital, immutable financial record that was with them at all times? A record that they could debit and credit between parties in seconds without being limited to a network provider and any party on the blockchain network, regardless of geography, could instantly transfer funds. 3 min read – Solutions must offer insights that enable businesses to anticipate market shifts, mitigate risks and drive growth.
This paper reviews the recent advances in central bank digital currency research in a way that would help researchers, policy makers and practitioners to take a closer look at central bank digital currency (CBDC). The review shows a general consensus that a central bank digital currency is a liability of the issuing central bank and it has cash-like attributes. The review also presents the motivation and benefits of issuing a central bank digital currency such as the need to improve the conduct of monetary policy, the need to enhance the efficiency of digital payments and the need to increase financial inclusion. The review also shows that many central banks are researching the potential to issue CBDCs due to its many benefits.
While many believe cryptocurrencies to have no intrinsic value, the value of the underlying technology i.e blockchain is something that can be argued upon. CBDCs remove the major cons of cryptocurrency by providing stability to the volatile cryptocurrency market and by acting as a legal tender thereby gaining the trust of retail public. Many governments believe that the introduction of CBDCs into the economy could simplify the payment’s structure thereby increasing the velocity of money leading to higher GDP growth.
Because of the benefits afforded by a central bank digital currency, policymakers at central banks estimate that at least one consumer-ready CBDC will launch within the next five years, according to a new study from IBM and OMFIF, an independent think tank. A central bank digital currency (CBDC) is a digital extension of a central bank’s medium of exchange able to permanently settle transactions between parties. The central bank is able to remove credit risk and ensure stability by guaranteeing the value of the CBDC, exactly like paper money.
