Fed Paper: CBDCs Could Increase Financial Instability

Central bank digital currencies (CBDCs) could contribute to financial instability, a Federal Reserve working paper finds.

Francesca Carapella et al examine several ways CBDCs could create instability, and how central banks could mitigate this, in Financial Stability Implications of CBDC. They note several ways in which a CBDC might make the economy less stable.

A CBDC’s safe asset status could increase the chance of a flight to it from other asset cases during market instability, they say. A CBDC that was widely available, interoperable, with a fast payment infrastructure could “dramatically reduce” switching costs from deposits and money-market instruments, accelerating bank runs.


To read the full article, visit centralbanking.com.

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