Llewellyn, David, Goodhart, Charles and Milne, Alistair (2025) Retail Central Bank Digital Currency: a review and assessment. SUERF Policy Notes, 370. SUERF The European Money and Finance Forum.
Full text not available from this repository.Abstract
In the interests of constructive debate about the possible introduction of a retail Central Bank Digital Currency (CBDC), this review offers a critical analysis of the potential benefits, costs and risks associated with retail CBDC at three levels: (1) the methodology of the debate, (2) the possible benefits of retail CBDC, and (3) the potential costs and risks associated with retail CBDC. Many specific advantages have been proposed in several papers and reports issued by central banks and others, it is though not clear that the problems it is designed to solve, or benefits that would accrue, would be more effectively and efficiently addressed through the creation of a retail CBDC rather than a combination of alternative private market innovations and/or regulation. There is also doubt about the potential user demand for such a new digital currency given the wide range of available alternative transactions media including existing digital options. Retail CBDC could struggle to become a significant payments mechanism with the necessary critical mass unless it can offer additional or better payments mechanisms than are already available with commercial bank money and the wide range of other payment mechanisms. Dependent in part on the particular design features embedded in the currency, its issue could have a significant impact on the banking system and the role of banks. However, central banks would always have the option of offsetting any impact on bank reserves, bank lending and deposits by their own market operations. Although concerns have been raised about recent trends in the payments system having the potential to undermine the role of central banks in the conduct of monetary policy, as commercial banks would continue to hold reserves at the central bank, they would still have the power to influence short-term interest rates in the normal way. Before any sensible decision can be made about such a major project, a full assessment of the costs and benefits needs to be made compared with alternative routes for securing any such benefits.
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