At the dawn of a new age

V. Digital turnaround in monetary policy? – The monetary policy aspects of central bank digital currencies Dániel Felcser – Zsolt Kuti – Gergő Török The wave of digitalisation seen in recent decades has reached central banks too. Besides the decline in the demand for cash, monetary policy also has to face external challenges in the future, and in this context central banking discourse has increasingly included the concept of central bank digital currencies (CBDCs).

The introduction of a CBDC means that the central bank provides nonfinancial actors access to its balance sheet. A deposit‑taking central bank only accepts deposits from non-financial actors, while a creditor central bank lends directly to the private sector. Should the central bank implement the CBDC as an interest‑bearing asset, it would gain a new monetary policy instrument for bypassing money markets and directly influencing the behaviour of non-financial actors. In the case of a creditor central bank, monetary policy transmission could strengthen further because the volatility of business cycles can be better mitigated through central bank lending. Moreover, a CBDC can also facilitate the introduction of even more accommodative and targeted monetary policy instruments.

However, CBDCs currently exist only as a theoretical concept, so there are no experiences about their impact on monetary policy and the real economy. Introduction is a highly complex and fairly unpredictable process, compounded by the issues of operational implementation as well. It raises adjustment issues for the banking system and, in the case of a creditor central bank, it may lead to the build‑up of credit risk on the central bank’s balance sheet. Due to the above, CBDCs’ benefit–cost balance can only be estimated with a great degree of uncertainty.

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