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Central Bank Digital Currency: Stability and Information

Today, the U.S. Office of Financial Research published a working paper, “Central Bank Digital Currency: Stability and Information” [archived PDF]. The working paper looks at how introducing a central bank digital currency (CBDC) would affect the banking system’s stability.

As central banks consider whether the benefits of creating digital cash outweigh the risks, the paper finds that at least one risk—bank runs—is not as significant as initially feared.

First, banks lower their maturity mismatch when depositors have access to CBDC, reducing their exposure to depositor runs. Second, the flow of funds into a CBDC provides policymakers with a new source of real-time information.

Read the working paper. [Archived PDF]

Author Richard MelsonPosted on July 12, 2022August 3, 2022Categories Economics, Essays, World WatchingTags asset–liability mismatch, bank, bank run, central bank, central bank digital currency, deposit account, digital currency, policy

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