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Central Bank Digital Currencies and Financial Stability: Balance Sheet Analysis and Policy Choices
This paper offers a comprehensive analysis of the implications for financial stability of a central bank issuing a digital currency to the public at large. We start with a systematic analysis of balance sheet changes that arise from the new liability for the central bank and the banking system, and examine how they depend on preconditions, central bank choices, and banking system responses. Based on this, we discuss the range of implications for financial stability that may arise in steady state, in the context of adoption, and in crisis times. Threats to financial intermediation in steady state arise mainly in situations where the central bank balance sheet expands, and triggers adjustment mechanisms that lead to more costly or less stable funding of the banking system, while in crisis times run risk may increase. Our analysis of policy choices to control these effects considers macroprudential policy, and an expansion of central bank lending to commercial banks, but finds that a main contribution needs to come from a design of the CBDC that encourages its use as a means of payment rather than a store of value.
Finland
This 2015 Article IV Consultation highlights that Finland’s exports have suffered owing to the declines of Nokia and the paper industry, compounded by weak external demand, especially from the euro area and Russia. The current account and fiscal balances have deteriorated, with the 2014 fiscal deficit breaching the Stability and Growth Pact’s 3 percent of GDP criterion. A modest recovery is projected to begin in 2015 and gradually strengthen in 2016. However, in absence of further reforms, growth is likely to remain much lower than pre-crisis. Weaker-than-expected growth in key trade partners would be a drag on exports, and spillovers from an external financial shock would create tighter financial conditions, with negative effects on output.
Sweden
This 2015 Article IV Consultation highlights that Sweden’s economy is performing well, with real GDP growth of 3.4 percent per year in the first three quarters of 2015, up from 2.3 percent in 2014. Job creation was robust in the first three quarters of 2015, helping bring the unemployment rate down to 7.2 percent in the third quarter. Core inflation rose to 1.4 percent per year on average in recent months, but remains below the 2 percent target. Solid growth of about 3 percent is expected to continue into 2016.
The White Death
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Dominican Republic
The mission helped the BCRD to assess a CBDC's potential macro-financial, legal, and financial integrity implications, and shared lessons from other countries' CBDC and digital money projects, technology considerations, practices for stakeholder engagement, and how CBDC can increase financial inclusion, among others. The mission advised the BCRD to continue the exploration of macro-financial implications of a CBDC, conduct the legal framework revisions should a positive decision of CBDC be taken, assess risks to financial integrity once a firmer design choice is made, and build up technology knowledge and capacity meanwhile.
Review of The Institutional View on The Liberalization and Management of Capital Flows — Background Note on Principles for the Design of Measures to Address Systemic Risks from FX Mismatches
This note describes the key principles for the design and implementation of preemptive CFM/MPMs. These measures should be designed to be effective—so they achieve their intended goal and are not easily circumvented—and efficient—so they minimize distortions and costs. Preemptive CFM/MPMs should be targeted, calibrated to risks, transparent, and as temporary as possible. The appropriate design depends on country circumstances, such as institutional and legal constraints, as well as the precise source of the vulnerability. Where measures that do not discriminate by residency are available and effective, they should be preferred.
NATO
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Housing Market Stability and Affordability in Asia-Pacific
The paper intends to highlight challenges in Asian housing markets linked to fast price rises especially in the advanced economies since COVID, and more broadly including many EMs in the period leading up to COVID. It aims to draw policy lessons on how to manage stability aspects through macroprudential and other policies and how to support affordability through structural policies and targeted government support.
