Federal Reserve released a paper focused on how retail CBDC could affect U.S. monetary policy implementation

The United States Federal Reserve has released a paper on the possible effects of a retail central bank digital currency (CBDC) on U.S. monetary policy implementation.

This paper discusses how a Federal Reserve issued retail central bank digital currency (CBDC) could affect U.S. monetary policy implementation and analyzes the effect a retail CBDC could have on the balance sheets of the Federal Reserve, commercial banks, and U.S. households.

The paper considers how these balance sheet changes could affect monetary policy implementation for the Federal Reserve and take into account four scenarios that illustrate the potential effects of a retail CBDC on monetary policy from the perspective of three stakeholder groups: the Fed, commercial banks and U.S. households.

Also, the paper illustrates that the potential effects on monetary policy implementation from a retail CBDC are highly dependent on the initial conditions of the Federal Reserve’s balance sheet. Moreover, the analysis demonstrates how the Federal Reserve may use its existing tools to manage the effects of a retail CBDC on monetary policy implementation.

The authors: „Using a stylized balance sheet analysis, we analyze the effect a retail CBDC could have on the balance sheets of the Federal Reserve, commercial banks, and U.S. households. Then we consider how these balance sheet changes could affect monetary policy implementation for the Federal Reserve. We illustrate that the potential effects on monetary policy implementation from a retail CBDC are highly dependent on the initial conditions of the Federal Reserve’s balance sheet. Moreover, the analysis demonstrates how the Federal Reserve may use its existing tools to manage the effects of a retail CBDC on monetary policy implementation.”

The full document: Retail CBDC and U.S. Monetary Policy Implementation: A Stylized Balance Sheet Analysis