The Role of Financial Institutions in Digital Currency Business Models of Central Banks

Abstract

The development of central bank digital currencies brings into question the business model to be used for their application in the financial system. Three business models are imposed and considered in search of the one that will best be adopted into the financial system and enable optimal management of the monetary economics. The role of financial institutions and corporate banks varies depending on the business model. Each model, direct, indirect or hybrid, features its own specificities. Central banks have implemented research and analysis of the stated models in order to find the one that would generate maximum potential. The conducted analyses show that central banks lean toward the hybrid model that encompasses the benefits of the direct and indirect models. The hybrid model does not deteriorate financial stability, financial institutions keep their role, while monetary policy management becomes more effective than in the case of the remaining models.

Keywords

• digital currencies of central banks
• monetary economics
• financial institutions
• direct model
• indirect model
• hybrid model