Central bank digital currencies influence financial stability by changing how money is held, transmitted, and regulated. Empirical and policy research identifies channels through which CBDCs can strengthen resilience or, if poorly designed, amplify shocks. Studies by the Bank for International Settlements and the International Monetary Fund inform these assessments and shape central bank choices.
Mechanisms linking CBDCs and stability
CBDCs can reduce frictions in payment systems and provide a risk-free public-money alternative to commercial bank deposits, supporting steadier retail payments during crises. Hyun Song Shin at the Bank for International Settlements has emphasised how digital money alters liquidity dynamics in the banking sector and can change banks’ roles as payment and maturity-transformation intermediaries. Tommaso Mancini-Griffoli at the International Monetary Fund and IMF research document that by improving the safety and efficiency of settlements, CBDCs can enhance the transmission of monetary policy and reduce operational vulnerabilities from reliance on private payment rails. These benefits depend heavily on whether CBDCs are interest-bearing, account-based, or token-like, and on the technical resilience of systems.
Risks, design choices, and societal consequences
A central risk is disintermediation: during stress, depositors may shift rapidly from uninsured bank deposits to CBDCs, causing sudden bank funding shortfalls. Agustín Carstens at the Bank for International Settlements has warned that design features such as unlimited CBDC holdings or market-rate remuneration could exacerbate deposit flight. To mitigate this, BIS and IMF analyses recommend measures like holding limits, tiered remuneration, and intermediated distribution through commercial banks to preserve credit intermediation. Policy trade-offs are inevitable: stronger limits preserve banking stability but reduce some convenience and inclusion benefits.
Territorial and cultural conditions matter. In emerging markets with large unbanked populations, CBDCs can expand financial inclusion and reduce cash-dependent informal flows, a point stressed in IMF country-level papers authored by its staff. Conversely, small open economies with dollarization risks face different trade-offs between monetary sovereignty and cross-border spillovers. Environmental and infrastructural factors also shape choices: energy-efficient ledger designs and robust offline capabilities matter where electricity or connectivity is intermittent.
Well-designed CBDCs can therefore be a stabilising public-good, but only if central banks adopt evidence-based safeguards, clear legal frameworks, and coordinated cross-border arrangements. Research and commentary from institutions such as the Bank for International Settlements and the International Monetary Fund provide practical design guidance grounded in historical experience and financial-system analysis.