Implications of central bank backed digital currencies (crypto currencies) on monetary policy, financial stability and balance sheets

Inhaltsverzeichnis (Table of Contents)

• 1. Introduction
• 2. The era of digital currencies
• 2.1. Cryptocurrencies, Digital Currencies, Virtual Currencies and Electronic Money
• 2.2. Central-Bank backed crypto-currency (CBDC)
• 2.3. Value versus account-based CBDC
• 2.4. Current state of research on CBDC amongst world's central banks
• 2.5. Types of money in the current economic system of the Euro Area
• 2.6. Summary
• 3. Methodology
• 3.1. Derivation of the four scenarios
• 3.2. Guiding thread of the paper
• 3.3. Delimitations of the study
• 3.3.2. Constraints regarding the two technological implementation options of a CBDC
• 3.4. Expert interviews
• 3.5. Summary
• 4. Status quo: Monetary policy and the banking system in the Euro Area
• 4.1. Monetary policy of the European Central bank
• 4.1.1. Monetary Policy in the Euro Zone
• 4.1.2. Current Monetary Policy Tools
• 4.1.3. Zero lower bound (ZLB) and the post crisis dilemma of ECB
• 4.2. Financial Stability: Commercial banks & the fractional reserve banking system (FRB)
• 4.2.1. The split-circuit of the two-tier money and banking structure
• 4.3. Stylized balance sheets
• 4.4. Summary
• 5. Theoretical concepts and literature review
• 5.1. Dialectic of money
• 5.2. Agency- theory: Moral Hazard of banks
• 5.3. Currency vs. Banking School
• 5.3.1. New Currency School
• 5.3.2. Banking school
• 5.3.3. Comparison of key arguments from Currency- and Banking School
• 5.4. Sovereign money model
• 5.6. Summary
• 6. Implications of a CBDC on monetary policy, financial stability & balance sheets
• 6.1. Scenario 1 - CBDC as a complementary to cash and bank money
• 6.1.1. Monetary Policy
• 6.1.2. Financial Stability
• 6.1.3. Balance Sheets
• 6.2. Scenario 2 - CBDC as replacement for cash and complementary bank money
• 6.2.1. Monetary Policy
• 6.2.1.1 Monetary Policy Implications under a CBDC with a constant nominal value (non-interest bearing)
• 6.2.1.2 Monetary Policy Implications under an interest-bearing CBDC
• 6.2.2. Financial stability
• 6.2.3. Balance Sheets
• 6.3. Scenario 3 & 4 - CBDC as replacement for bank money and complementary/ replacement for cash
• 6.3.1. Monetary Policy
• 6.3.2. Financial stability
• 6.3.3. Balance Sheets
• 6.4. Summary of results
• 7. Discussion of scenarios in two schools: Currency vs. Banking School
• 7.1. Classification of Scenario 1
• 7.2. Classification of Scenario 2
• 7.3. Classification of Scenario 3 & 4
• 7.4. Summary
• 8. Discussion and suggestion for further research

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This paper investigates the potential implications of a central bank-issued digital currency (CBDC) on monetary policy, financial stability, and the balance sheets of non-bank private sector, central bank, and commercial banks. The research employs a scenario analysis to explore different CBDC implementation models and their potential impact on these key areas.

• The impact of a CBDC on monetary policy effectiveness and the role of central banks
• Potential implications for financial stability and the management of systemic risk
• The effects of a CBDC on the balance sheets of various stakeholders, including commercial banks, central banks, and the non-bank private sector
• The role of technological advancements in shaping the future of monetary systems
• The potential impact of a CBDC on the existing economic and financial order

Zusammenfassung der Kapitel (Chapter Summaries)

• Chapter 1 provides an introduction to the research topic, highlighting the growing interest in central bank digital currencies and the potential implications for monetary policy and financial stability.
• Chapter 2 explores the different types of digital currencies, including cryptocurrencies, virtual currencies, and electronic money. It examines the concept of central bank-backed digital currencies (CBDCs) and their potential advantages and disadvantages.
• Chapter 3 outlines the methodology used in this paper, including the derivation of four scenarios for CBDC implementation and the use of expert interviews to gather insights from key stakeholders.
• Chapter 4 presents an overview of the current monetary policy framework and the banking system in the Euro Area, focusing on the roles of the European Central Bank and commercial banks in maintaining financial stability.
• Chapter 5 reviews relevant theoretical concepts and literature, exploring the dialectic of money, agency theory, and the Currency vs. Banking school debates. It also examines the sovereign money model and its potential relevance to the CBDC discussion.
• Chapter 6 analyzes the potential implications of a CBDC on monetary policy, financial stability, and balance sheets across the four scenarios. It investigates the potential impact of each scenario on the central bank, commercial banks, and the non-bank private sector.

Schlüsselwörter (Keywords)

This study focuses on the implications of a central bank-backed digital currency (CBDC) on monetary policy, financial stability, and balance sheets. It delves into the key themes of monetary policy effectiveness, financial stability management, and the role of commercial banks in the evolving monetary system. Additionally, the paper explores technological advancements in digital currency implementation and the potential impact on the existing economic and financial order.