Falling Use Of Cash And Demand For Retail Central Bank Digital Currency

Cash use in most countries is falling slowly. On the margin, younger adults favor cash substitutes over cash. For older adults it is the reverse. Revealed preference tied to a changing population age structure seems to be the main influence on the demand for cash and why it is falling. Cash use may continue to fall, and card use (the main cash substitute) may fall by more, if CBDC is issued. The extent of this reduction depends on the demand for retail CBDC and the incentives (primarily transaction fees) that can play a determining role in CBDC adoption and use.

The level and trend in cash use in a country will influence the demand for central bank digital currency (CBDC). While access to digital currency will be more convenient than traveling to an ATM, it only makes CBDC like a bank debit card—not better. Demand for digital currency will thus be weak in countries where cash use is already very low, due to a preference for cash substitutes (cards, electronic money, mobile phone payments). Where cash use is very high, demand should be stronger, due to a lack of cash substitutes. As the demand for CBDC is tied to the current level of cash use, we estimate the level and trend in cash use for 11 countries using four different measures. A tentative forecast of cash use is also made. After showing that declining cash use is largely associated with demographic change, we tie the level of cash use to the likely demand for CBDC in different countries. In this process, we suggest that one measure of cash use is more useful than the others. If cash is important for monetary policy, payment instrument competition, or as an alternative payment instrument in the event of operational problems with privately supplied payment methods, the introduction of CBDC may best be introduced before cash substitutes become so ubiquitous that the viability of CBDC could be in doubt.

This paper examines key considerations around central bank digital currency (CBDC) for use by the general public, based on a comprehensive review of recent research, central bank experiments, and ongoing discussions among stakeholders. It looks at the reasons why central banks are exploring retail CBDC issuance, policy and design considerations; legal, governance and regulatory perspectives; plus cybersecurity and other risk considerations. This paper makes a contribution to the CBDC literature by suggesting a structured framework to organize discussions on whether or not to issue CBDC, with an operational focus and a project management perspective.

Digitalization is reshaping economic activity, shrinking the role of cash, and spurring new digital forms of money. Central banks have been pondering wheter and how to adapt. One possibility is central bank digital currency (CBDC)-- a widely accessible digital form of fiat money that could be legal tender. This discussion note proposes a conceptual framework to assess the case for CBDC adoption from the perspective of users and central banks. It discusses possible CBDC designs, and explores potential benefits and costs, with a focus on the impact on monetary policy, financial stability, and integrity. This note also surveys research and pilot studies on CBDC by central banks around the world.

In the ever-evolving landscape of global finance, the rise of Central Bank Digital Currencies (CBDCs) has introduced a myriad of challenges that demand immediate scholarly attention. The accelerating pace of digital transformation, coupled with the intricate dynamics of these novel currencies, poses significant hurdles in their widespread adoption. From privacy concerns to the technological complexities involved, the academic community finds itself at the forefront of deciphering the multifaceted challenges inherent in the CBDC landscape. Addressing this imperative need for comprehensive analysis is the groundbreaking publication, Exploring Central Bank Digital Currencies: Concepts, Frameworks, Models, and Challenges. Within the pages of this compelling work, scholars will encounter a meticulous exploration of the intricate evolution of money, navigating from traditional barter systems to the digital era. The catalytic role of Bitcoin in reshaping the financial landscape serves as a cornerstone, laying the foundation for a profound understanding of the cryptocurrency fundamentals that underpin CBDCs. This book delves into the conceptual frameworks and technological models shaping CBDCs, aiming to illuminate the complex challenges faced by central banks, governments, and financial institutions in their pursuit of digital currency integration.

Financial inclusion is a key policy objective that central banks, especially those in emerging and low-income countries, are considering for retail central bank digital currency (CBDC). If properly designed to address the barriers to financial inclusion, CBDCs have the opportunity to gain acceptance by the financially excluded for digital payments. CBDC can then serve as an entry point to the broader formal financial system. CBDC has special aspects that may benefit financial inclusion, such as being a risk-free and widely acceptable form of digital money, availability for offline payments, and potentially lower costs and greater accessibility. However, CBDC is not a panacea to financial inclusion, and additional experience is needed to fully understand its potential impact.

We study the optimal design of a central bank digital currency (CBDC) in an environment where agents sort into cash, CBDC and bank deposits according to their preferences over anonymity and security; and where network effects make the convenience of payment instruments dependent on the number of their users. CBDC can be designed with attributes similar to cash or deposits, and can be interest-bearing: a CBDC that closely competes with deposits depresses bank credit and output, while a cash-like CBDC may lead to the disappearance of cash. Then, the optimal CBDC design trades off bank intermediation against the social value of maintaining diverse payment instruments. When network effects matter, an interest-bearing CBDC alleviates the central bank's tradeoff.

Master's Thesis from the year 2018 in the subject Economics - Finance, grade: 1,0, Copenhagen Business School, language: English, abstract: Inspired by the recent publication of various Central Banks that study the issuance of their own versions of digital currencies, this paper aims at identifying the implications of such a central bank issued digital currency on monetary policy, financial stability and non-bank private sector, central bank and commercial bank balance sheet. It does so by conducting a scenario analysis, where each scenario specifies a distinct form of how a central bank issued digital currency could be introduced and how the resulting implications on the spheres of interest might change as a consequence. The results of this scenario analysis propose that in either implementation mode a CBDC generally provides a positive effect on both financial stability and monetary policy. The degree of the advantageous effect is, however, not only dependent on the implementation scenario, but also on the behaviour of the central banks, the commercial banks and the general public. In terms of balance sheets, this paper identified major changes. The results and implications that have been derived are based on literature, an expert interview and previous research conducted by other central banks and notable scholars. Based on the implications stemming from the four investigated scenarios, this paper evaluates these implications from a perspective of the New Currency School and Banking School. All in all, since this paper sees a central bank backed digital currency as a potential catalyst for a substantial change of the current monetary system, it provides scenarios and theories that challenge the status quo.