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Document Type

Article

JEL Codes

E42, E51, G20

Abstract

This paper analyzes the implications of different models of intermediation, clearing, and settlement of central bank digital currency (CBDC) for the ability of the financial system to create money and, through it, to possibly affect financial stability. Only two models have the potential to limit the private sectors’ ability to create money: a model where the central bank directly opens accounts with the public and a model where the central bank allows intermediaries to perform only custodial activities in CBDC. Under any other intermediation model, money can be created inside the financial system by the intermediaries providing payment services associated with CBDC holdings. However, the creation of inside money does not necessarily affect financial stability per se; it does so indirectly by facilitating activities linked to maturity transformation.

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