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On May 18, the Bank of England published a working paper on the possible risks and financial stability of central bank digital currencies (CBDCs). The paper constructs three models, each with a different set of sectors that have access to the CBDC.

The models are as follows:

1. Financial Institutions Access

Access to the CBDC is given to banks and non-bank financial institutions (NBFIs). Institutions gain access to digital currency trading in exchange for securities directly from the central bank. Individual households do not receive assets from these financial institutions - the turnover of digital currencies occurs only among banks and the NBFI.

2. Economy-wide Access

The BoE gives access to its currency to banks, non-bank institutions, and various firms and households. Thus, the entire economy uses the digital currency as money. At the same time, only banks and NBFIs can directly buy the digital currency from the central bank. Firms and households can trade digital currency on an exchange controlled by the central bank in exchange for deposits.

3. Financial Institutions Plus CBDC-Backed Narrow Bank

Access Access is granted to financial institutions and a ‘narrow bank’ - a non-banking institution that playing the role of an intermediary, opening financial assets for households and firms. The ‘narrow bank’ does not provide loans and is fully supported by the CBDC.

By Ekaterina Ulyanova

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