Central bank digital currencies: policy and design
- 17 March 2021 (5 min read)
Key points
- Central bank digital currencies (CBDC) are designed to allow direct access to a central bank’s deposits also to households
- Currently, a vast majority of central banks are engaging in CBDC research
- CBDC is neither a cryptocurrency nor a totally new technology, but rather a natural evolution of money in order to cope with rapid technological progress
- Design features must be carefully assessed, as to not to interfere with existing monetary goals
- However, CBDC’s costs and benefits are not limited to the monetary sphere, as they extend into the social and environmental realm
- Monetary policy and financial stability are key points on the CBDC research agenda
- Several solutions to financial stability risks have been proposed, particularly solutions based on the concept or quantity rationing or interest rate tiering of CBDC
- Broader macroeconomic and strategic geopolitical effects (e.g. ‘first-mover advantage’) of CBDC must be accounted for
- The future co-evolution of traditional and digital currencies is still an open question
This paper discusses the potential benefits and the challenges of central bank digital currencies (CBDC), i.e. collateralised digital currencies issued by a monetary authority. Starting with a brief review of money, we then analyse both the similarities and differences between digital and traditional currencies. We also consider the advantages of a CBDC over a private sector digital currency. While providing a summary of existing relevant research, we highlight the importance of digital currencies for future research in other areas of economics.
Not for Retail distribution
This document is intended exclusively for Professional, Institutional, Qualified or Wholesale Clients / Investors only, as defined by applicable local laws and regulation. Circulation must be restricted accordingly.
This promotional communication does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.
Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee that forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.
Before making an investment, investors should read the relevant Prospectus and the Key Investor Information Document / scheme documents, which provide full product details including investment charges and risks. The information contained herein is not a substitute for those documents or for professional external advice.
The products or strategies discussed in this document may not be registered nor available in your jurisdiction. Please check the countries of registration with the asset manager, or on the web site https://www.axa-im.com/en/registration-map, where a fund registration map is available. In particular units of the funds may not be offered, sold or delivered to U.S. Persons within the meaning of Regulation S of the U.S. Securities Act of 1933. The tax treatment relating to the holding, acquisition or disposal of shares or units in the fund depends on each investor’s tax status or treatment and may be subject to change. Any potential investor is strongly encouraged to seek advice from its own tax advisors.
Past performance is not a guide to current or future performance, and any performance or return data displayed does not take into account commissions and costs incurred when issuing or redeeming units. The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested. Exchange-rate fluctuations may also affect the value of their investment. Due to this and the initial charge that is usually made, an investment is not usually suitable as a short term holding.