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

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Listed:
  • Matthew Malloy
  • Francis Martinez
  • Mary-Frances Styczynski
  • Alex Thorp

Abstract

This paper discusses how a Federal Reserve issued retail central bank digital currency (CBDC) could affect U.S. monetary policy implementation. 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.

Suggested Citation

  • Matthew Malloy & Francis Martinez & Mary-Frances Styczynski & Alex Thorp, 2022. "Retail CBDC and U.S. Monetary Policy Implementation: A Stylized Balance Sheet Analysis," Finance and Economics Discussion Series 2022-032, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2022-32
    DOI: 10.17016/FEDS.2022.032
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    References listed on IDEAS

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    1. Ferrari Minesso, Massimo & Mehl, Arnaud & Stracca, Livio, 2022. "Central bank digital currency in an open economy," Journal of Monetary Economics, Elsevier, vol. 127(C), pages 54-68.
    2. Gersbach, Hans & Böser, Florian, 2020. "Monetary Policy with a Central Bank Digital Currency: The Short and the Long Term," CEPR Discussion Papers 15322, C.E.P.R. Discussion Papers.
    3. C. Pfister, 2017. "Monetary Policy and Digital Currencies: Much Ado about Nothing?," Working papers 642, Banque de France.
    4. Jane E. Ihrig & Zeynep Senyuz & Gretchen C. Weinbach, 2020. "Implementing Monetary Policy in an "Ample-Reserves" Regime: The Basics (Note 1 of 3)," FEDS Notes 2020-07-01, Board of Governors of the Federal Reserve System (U.S.).
    5. Jane E. Ihrig & Zeynep Senyuz & Gretchen C. Weinbach, 2020. "Implementing Monetary Policy in an "Ample-Reserves" Regime: Maintaining an Ample Quantity of Reserves (Note 2 of 3)," FEDS Notes 2020-08-28, Board of Governors of the Federal Reserve System (U.S.).
    6. Meaning, Jack & Dyson, Ben & Barker, James & Clayton, Emily, 2018. "Broadening narrow money: monetary policy with a central bank digital currency," Bank of England working papers 724, Bank of England.
    7. Barrdear, John & Kumhof, Michael, 2016. "The macroeconomics of central bank issued digital currencies," Bank of England working papers 605, Bank of England.
    8. Jane E. Ihrig & Zeynep Senyuz & Gretchen C. Weinbach, 2020. "Implementing Monetary Policy in an "Ample-Reserves" Regime: When in Crisis (Note 3 of 3)," FEDS Notes 2020-10-02, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. Caccia, Enea & Tapking, Jens & Vlassopoulos, Thomas, 2024. "Central bank digital currency and monetary policy implementation," Occasional Paper Series 345, European Central Bank.

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    More about this item

    Keywords

    Bank behavior; Central banking; Households; Monetary policy implementation; Retail CBDC;
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