Retail CBDC purposes and risk transfers to the central bank

Dr. Romain Baeriswyl, Dr. Samuel Reynard and Alexandre Swoboda

Issue
2021-19

Pages
25

JEL classification
E42, E52, E58

Keywords
Retail central bank digital currency

Year
2021

The issuance of retail central bank digital currency (CBDC) entails a transfer of risk from commercial banks to the central bank. While this paper does not provide an overall assessment on whether or not to issue a retail CBDC, it analyzes how different mechanisms to limit the risk transfer, such as an unattractive interest rate on retail CBDC, a quantity ceiling or preventing convertibility of cash and reserves into CBDC, have different effects on the ability of retail CBDC to fulfil its intended purposes. In particular, these mechanisms hinder the use of CBDC as a medium of exchange. Specific aspects of demand and challenges related to a potential retail CBDC in Switzerland, namely, a small open economy with a safe-haven currency and a low level of government debt, are discussed.