The Case for Convenience: How CBDC Design Choices Impact Monetary Policy Pass-Through

Categories : Regulation and Payment System Governance, Regulation of Digital Financial Services


Author: Bank of International Settlements

More and more central banks are transitioning from conceptualising central bank digital currencies (CBDCs) to considering a launch. Attention has shifted from high-level monetary policy and financial stability considerations to country-specific design and policy interactions.

This paper focuses on the monetary system of the United States, which is characterised by large excess reserves, and in which the main monetary policy tool of the central bank is the rate of interest on reserves (IOR). The paper explores how the introduction of a CBDC that offers payment convenience and potentially pays interest might affect how changes in the IOR rate feed through to deposit rates. Our model accounts for differences in depositor benefits and loan costs across banks of different sizes.