Central Banks and Monetary Policy Under Conditions of CBDC

The rise of CBDC and the gradually diminishing importance of bank money will loosen today’s overly tight bonds between central bank and banks. Options for monetary quantity policy are becoming available again. The effectiveness of central-bank interest-rate policy is being enhanced. The horizon of variables relevant to monetary policy is broadening, e.g. in terms of non-GDP finance and asset inflation. More clearly than before, central banks are becoming national monetary authorities, the monetary power of the state, complementing the executive, legislative and judicial branches. In this function, monetary policy must be independent, comparable to the independence of jurisdiction, i.e. independent from government directives as well as from the immediate requests of banks and financial markets. Monetary, fiscal and private-creditary responsibilities must not be blurred, while responsive cross-domain cooperation remains indispensable. From such a position, a central bank will not only contribute to refinancing the banking sector, but can, within the scope of always limited potentials, also directly contribute to the monetary financing of government expenditure. The creation of CBDC as a monetary asset and as sovereign base money suggests a modified monetary accounting procedure.