Highlights:

• A few small central banks have already launched a digital currency (CBDC) and almost nine in ten globally are at least considering its issuance. The ECB has kicked off an investigation phase in July.
• A key aim is maintaining monetary sovereignty and limiting systemic risks amid the rise of private digital money and declining cash transactions. CBDCs may also enhance transaction efficiency and financial inclusion.
• Most central banks will tread carefully in launching CBDCs, addressing security risks and adverse impacts on banks.
• A CBDC open to the general public with accounts intermediated by commercial banks will rank highest in a wide range of options. Account caps or tiered penalty interest rates will at least initially serve to avoid deposit drains at commercial banks.
• Longer term, a full digital replacement of cash would allow policy makers to sharpen their tools. It would e.g. enable central banks to impose negative rates on all cash and deposits. Governments may deploy fiscal transfers faster while constraining the timing and scope of their use via programmable CBDCs.

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