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© 2022 International Monetary Fund
WP/22/206
IMF Working Paper
Monetary and Capital Markets Department
Digital Money and Central Banks Balance Sheet
Prepared by: Adrian Armas and Manmohan Singh
Authorized for distribution by Jihad Alwazir
October 2022
IMF Working Papers describe research in progress by the authors and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the authors and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: Digital money is a logical step in a process of continuous technological advancement in payment systems. In response, central banks are reviewing their conduct of monetary operations in light of the new shape of financial markets and systems. The impact of digital money will depend on the type of money substitution by digital money. The paper straddles several cases where substitution of CiC (currency in circulation), and bank deposits may take place via digital money such as CBDC or other e-money, and how it would impact the central bank balance sheet. Remuneration of CBDC, if aligned to a new objective, could potentially amplify the effect on the interest rate channel of monetary policy.
| JEL Classification Numbers: | E5; E41; G15; F30 |
| Keywords: | CBDC; digital money; currency-in-circulation; bank deposits; central bank balance sheet; money base (M0); seigniorage |
| Author’s E-Mail Address: | msingh@imf.org; adrian.armas@bcrp.gob.pe |
| JEL Classification Numbers: | E5; E41; G15; F30 |
| Keywords: | CBDC; digital money; currency-in-circulation; bank deposits; central bank balance sheet; money base (M0); seigniorage |
| Author’s E-Mail Address: | msingh@imf.org; adrian.armas@bcrp.gob.pe |
Contents
Glossary
I. Introduction
II. Lessons from Bi-Monetary Systems
III. Monetary Policy and Central Banks Balance Sheet
IV. Base Money Issues: M0 or Not
V. Monetary Aggregates and Bank Credit Under Digital Money
VI. Conclusion
References
FIGURES
1. Standard CB Balance Sheet (Focus on CiC and Monetary Base)
2. Issuance of CBDC or Stablecoins by the CB (left) or Outside the CB (right)
TABLE
1. Countries Classified by Dollarization Level
ANNEX
I. Potential Impact of Value-Based CBDC with a Cap for Relative Small Amounts
Glossary
| AAA | Triple-A |
| ATM | Automated Teller Machine |
| BCB | Central Bank of Brazil |
| CBDC | Central Bank Digital Currency |
| CBs | Central Banks |
| CiC | Currency in Circulation |
| ECB | European Central Bank |
| FD | Financial Dollarization |
| FX | Foreign Exchange |
| GDP | Gross Domestic Product |
| GFC | Global Financial Crisis |
| IT | Inflation Targeting |
| LOLR | Lender of Last Resort |
| M0 | Monetary (or Money) Base |
| NPCI | National Payments Corporation of India |
| NPV | Net Present Value |
| OMO | Open Market Operations |
| PSP | Payment Service Provider |
| QE | Quantitative Easing |
| RBI | Reserve Bank of India |
| RD | Real Dollarization |
| SMEs | Small and Medium-sized Enterprises |
| UPI | United Payments Interface |
| USDC | USD Coin |