Finance and Economics Discussion Series (FEDS)
May 2022
Retail CBDC and U.S. Monetary Policy Implementation: A Stylized Balance Sheet Analysis
Matthew Malloy, Francis Martinez, Mary-Frances Styczynski, and 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.
Accessible materials (.zip)
Keywords: Bank behavior, Central banking, Households, Monetary policy implementation, Retail CBDC
DOI: https://doi.org/10.17016/FEDS.2022.032
PDF: Full Paper
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