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"Private digital currencies improve welfare within an emerging market with a selfish government [by disciplining] monetary policy by creating an alternative to local fiat. That monetary policy discipline reduces inflation and results in higher returns from investment which in turn encourages higher local investment."

This US Federal Reserve note explores the potential effects of the widespread adoption of a global stablecoin (GSC) on key aggregate financial sector balance sheets in the United States. To do this, it maps out cash flows of GSC transactions among financial sector entities using a stylized set of 't-accounts'. By analyzing these individual transactions, it infers aggregate and compositional effects on U.S. commercial banking sector and Federal Reserve balance sheets. Through this lens, the note also considers how these balance sheet changes could affect monetary policy implementation, the demand for central bank reserves, and the market for US dollar safe assets.

We build a stylized, nominal Diamond-and-Dybvig (1983) model, a consolidated central bank conducts maturity transformation, issuing on-demand, nominal liabilities in the form of an account-based central bank digital currency (CBDC) to citizens and investing the funds in a real asset. We show, the central bank's classic role as the guardian of price stability is in fundamental conflict with its role as a financial intermediator. Implementation of the socially optimal allocation requires a commitment to inflation. Commitment to price stability jeopardizes the real return on currency, and causes runs. Central bank runs manifest themselves as a `run on the price level'.

The BIS published a paper that that explores the implications of central bank digital currency (CBDC) remuneration and convenience, focusing on the US monetary system with its large excess reserves, with the rate of interest on reserves (IOR) as the main monetary policy tool. The paper finds that at low IOR rates, large banks are non-responsive to IOR rate changes, leading to weak pass-through of IOR rate changes to deposit rates. Here an interest-bearing CBDC could provide competitive pressure to drive up deposit rates and improve monetary policy transmission. However, increasing remuneration past a point where it becomes a binding floor, increases deposit rates but leads to greater inequality of market shares in both deposit and lending markets, and reducing deposit rate responsiveness to IOR changes... The paper also finds that payment convenience is a crucial aspect of CBDC design that may be more desirable than remunerating CBDC. Payment convenience could be driven by a host of features that enhance the performance of CBDC as a medium of exchange. Examples include the quality of the user interface, processing speed, privacy and access to markets. A highly convenient CBDC produces sufficient competitive pressure in deposit markets to raise deposit rates for any given level of IOR and increases the responsiveness of deposit rates to IOR rate changes. Increasing payment convenience also has favorable effects on market composition by levelling the playing field

"We study how the introduction of a central bank digital currency (CBDC) interacts with ongoing monetary policies. We distinguish two policies: standard policy, where the central bank holds treasuries, and quantitative easing, where the central bank holds risky securities. We introduce an interest-bearing CBDC in each scenario and study the equilibrium allocations. We reach three main conclusions. First, the equilibrium impact of a CBDC depends on the ongoing monetary policy. Second, when the central bank conducts quantitative easing, the introduction of a CBDC is neutral under two conditions: the cost of issuing a CBDC is equal to the interest on reserves, and the demand for CBDC deposits is smaller than the amount of excess reserves in the system. Third, the introduction of a CBDC might render quantitative easing a quasi-permanent policy, as commercial banks optimally use their excess reserves to accommodate retailers' demand for switching from bank to CBDC deposits."

"In the two-country model in Benigno, Schilling & Uhlig (2022), the usage of a privately-issued crypto-asset as a global means of payment leads to the enforced synchronization of nominal interest rates, and hence to a loss of monetary policy autonomy. This paper shows that the same result obtains in a world in which central banks issue digital currencies (CBDC) to be used abroad. In that case, shock transmission is symmetric, whereas it is asymmetric if only one country issues international CBDC or crypto-assets are tied to one currency (stablecoin)."

CBDCs can induce changes in the retail, wholesale and cross border payments that have negative spillover effects on monetary policy, through their effects on money velocity, bank deposit disintermediation, volatility of bank reserves, currency substitution, and capital flows. Countries most vulnerable are those with banking systems dominated by small retail deposits and demand deposits, low levels of digital payments and weak macro fundamentals. Proposed CBDC design features, such as caps on CBDC holdings and unremunerating the CBDC can moderate disintermediation risks, but they are not sufficient. Central banks will need to ensure that unintended macroeconomic risks are comprehensively identified and mitigated.

The BIS published a paper that documents some stylized facts on Bigtech credit and rationalize them through the lens of a model where Bigtechs facilitate matching on the e-commerce platform and extend loans. Bigtech reinforces credit repayment with the threat of exclusion from the platform, while bank credit is secured against collateral. The model suggests that: (i) a rise in Bigtechs' matching efficiency increases the value for firms of trading on the platform and the availability of Bigtech credit; (ii) Bigtech credit mitigates the initial response of output to a monetary shock, while increasing its persistence; (iii) the efficiency gains generated by big techs are limited by the distortionary fees collected from users.

"How might stablecoin affect inflation? It depends on where the stablecoin issuers put the reserve assets at and whether the issuers are bank or non-bank."

The European Central Bank (ECB) published a paper that discusses the potential impact of retail CBDC introduction on monetary policy implementation if it leads to a decrease in commercial bank deposits. Should this happen, bank holdings of central bank reserve holdings might shrink. However, the paper argues that uncertainty as to the timing and extent of any conversions of deposits into CBDC might prompt banks to scale up their demand for central bank reserves in order to hold larger precautionary buffers. Consequently, central banks might need to adjust their reserve supply and other features of their monetary policy implementation. In any case, the paper suggests CBDC design features could mitigate the risk of negative consequences for monetary policy implementation.

The IMF published a paper that uses a two-way fixed effect estimator using 2001-2019 panel data, on both monthly (covering 21 countries) and annual (covering 47 countries) frequencies, to estimate the causal effects of e-money development on monetary policy transmission. It finds that e-money development has accompanied stronger monetary policy transmission (measured by the responsiveness of interest rates to the policy rate), growth in bank deposits and credit, and efficiency gains in financial intermediation (measured by the lending-to-deposit rate spread). Evidence is more pronounced in countries where e-money development takes off in a context of limited financial inclusion.

A chapter published in a legal conference volume published by the European Central Bank (ECB) investigated the potential rationale for the introduction of a central bank digital currency (CBDC) to preserve monetary sovereignty. It concluded that the introduction of a CBDC as a protective measure when the currency substitution is caused by unfavorable economic conditions is neither effective nor appropriate for such purposes. And it identified only a very limited set of circumstances when the issuance of a CBDC might be appropriate to push back on the use of technologically superior foreign money. And more bluntly, it concluded that "a digital euro might help defend the monetary sovereignty of the euro area Member States by facilitating cross-border payments as a conduit, mitigating dependence on foreign infrastructure for pan-European payments, serving as a catalyst for the promotion of technologically new payment functionalities and offering a digital complement to cash. In its planned form, however, the digital euro is not (yet) fit for purpose. Its statutory privilege compared to cash and its holding limits will prevent it from fulfilling its anchoring function. Its issuance would thus weaken rather than strengthen the euro area's monetary sovereignty in the long run." [starts on page 165]