Copyright Page

© 2023 International Monetary Fund


IMF Working Paper

Monetary and Capital Markets Department (MCM)

Monetary Policy Implications Central Bank Digital Currencies: Perspectives on Jurisdictions with Conventional and Islamic Banking Systems

Prepared by Inutu Lukonga1

Authorized for distribution by Tommaso Mancini Griffoli

March 2023

IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

ABSTRACT: Central bank digital currencies (CBDCs) promise many benefits but, if not well designed, they could have undesired consequences, including for monetary policy. Issuing an unremunerated CBDC or a wholesale CBDC does not change the objectives of monetary policy or the operational framework for monetary policy. CBDCs can, however, induce changes in the retail, wholesale and cross border payments that have negative spillover effects on monetary policy, through their effects on money velocity, bank deposit

disintermediation, volatility of bank reserves, currency substitution, and capital flows. Countries most vulnerable are those with banking systems dominated by small retail deposits and demand deposits, low levels of digital payments and weak macro fundamentals. Proposed CBDC design features, such as caps on CBDC holdings and unremunerating the CBDC can moderate disintermediation risks, but they are not sufficient. Central banks will need to ensure that unintended macroeconomic risks are comprehensively identified and mitigated.

article image


  • Glossary

  • Introduction

  • CBDC Design Options, Intrinsic Risks to Monetary Policy, and Country Choices

    • Design Options and their Implications for Monetary Policy

    • Cross Country Trends and Choices

  • Monetary Policy Implications of Issuing CBDCs

  • Monetary Policy Frameworks and Transmission Channels

    • How CBDCs Impact Monetary Policy Implementation and Transmission

      • Retail CBDCs

      • Wholesale CBDCs

      • Cross Border Use of CBDCs

    • Strength and Speed of the Impact on Monetary Policy

      • Retail CBDCs, Deposit Disintermediation and Changes to Money Velocity

      • W-CBDCs, Tokenization and Financial Market Segmentation

      • Cross-Border Use of CBDCs, Currency Substitution and Capital Flow Volatility

    • Implications for Jurisdictions with Islamic Banks

      • Overview of Islamic Financial Systems and Monetary Policy Fr2ameworks

      • Sharia’h Principles and CBDC Designs

      • Potential Impact on Monetary Policy Implementation and Transmission

  • Conclusions and Policy Strategies

  • References


  • 1. Taxonomy of Retail CBDC Designs

  • 2. The Quantity Theory of Money and Money Demand


  • 1. CBDC Design Options

  • 2. Risks to Monetary Policy Inherent in CBDC Designs

  • 3. Status of CBDC Projects Around the World

  • 4. Trends by Type of CBDCs

  • 5. Distribution of Countries by Nominal Anchor

  • 6. Operational Frameworks for Monetary Policy

  • 7. Channels through which CBDCs Impact Monetary Policy

  • 8. Main Systems Used for Large Value Payments

  • 9. Changes in Currency in Circulation to GDP

  • 10. Cash as a Ratio of Money Supply

  • 11. Penetration of Debit, Credit Cards and ATMs

  • 12. Technological Developments and Money Velocity

  • 13. Jurisdictions with Large Islamic Banking Sector and Share of Unremunerated Accounts

  • 14. Monetary Policy Regimes in Countries with Islamic Banks

  • 15. Monetary Policy Transmission in Jurisdictions with Islamic Banking Systems

  • 16. Balance Sheet Structure of Islamic Banks


  • 1. Balance Sheet Effects of Exchanging Cash for CBDCs

  • 2. Balance Sheet Effects of Substituting Bank Deposits for CBDCs

  • 3. Balance Sheet Impact of Central Bank Operations to Compensate for the Decline in Deposits

  • 4. Stylized Balance Sheet Involving W-CBDC


article image

The author would like to thank Messrs. Ammar Ahmed, Tohid Atashbar, German Villegas Bauer, Marianne Bechara, Tom Bernhardsen, Snorre Evjen, Stephanie Forte, Shafiq Ghawi, Florida Gimbel, Carel Hugo, Gregorio Impavido, Nachega Jean-Claude, Arne Kloster, Michael Law, Ashley Lannquist, Rumit Pancholi, Erlend Walter Nier, Ryan Rizaldy, Nadine Schwarz, Faith Stewart, Chia Yi Tan, and Herve Tourpe for the excellent comments.

Monetary Policy Implications of Central Bank Digital Currencies: Perspectives on Jurisdictions with Conventional and Islamic Banking Systems
Author: Ms. Inutu Lukonga