Retail CBDC purposes and risk transfers to the central bank

Abstract

Abstract The issuance of retail central bank digital currency (CBDC) involves a transfer of risk from commercial banks to the central bank. Mechanisms that limit the transfer of risk, such as an unattractive interest rate, a quantity ceiling or the non-convertibility of cash and reserves into CBDC, are likely to discourage the use of CBDC as a medium of exchange and thus defeat the purpose of issuing CBDC.

Keywords

• Central bank digital currency (CBDC)
• Fractional-reserve banking
• Gresham’s law
• Medium of exchange