![]() For moderate levels of CBDC holdings, the effects on monetary policy transmission are expected to be relatively small in normal times. These changes in the macroeconomic environment can potentially strengthen the channels of monetary policy transmission if CBDC is appropriately designed. A CBDC also could bolster financial inclusion and help reduce dollarization or cryptoization. A CBDC offers a safe store of value and efficient means of payment, which can increase competition for deposit funding, raise banks’ share of wholesale funding, and lower bank profits. Will CBDCs Affect Monetary Policy Transmission?ĬBDCs could affect the macroeconomic environment that underpins monetary policy transmission. The pilot phase represents the live testing of a quasi-final product, while the production phase marks the final issuance and operation of the CBDC.ģ. The prototype phase concentrates on the development or acquisition of necessary technologies and the selection of relevant partners. The proof-of-concept phase involves conducting small-scale empirical tests and validation activities to gain insights into CBDC designs, typically in a laboratory environment. The preparation phase focuses on researching trends, defining objectives, establishing success criteria, evaluating feasibility, assessing capacity, and analyzing risks. The 5P methodology comprises five distinct phases. The methodology draws from experiences in various jurisdictions and incorporates best practices from different industries, and is intended to facilitate experimentation and support progressive decision-making while effectively managing risks. This chapter introduces the '5P methodology' designed to guide central banks in exploring and developing CBDC, from research to potential launch. How Can Central Banks Manage CBDC Product Development? Given rapid developments in technology and the ongoing lessons that are-and will be-learned world-wide, CBDC exploration will need to continue even beyond the point of issuance.Ģ. These steps should not give the impression of a linear process. Sixth, a sound legal basis and robust regulatory foundations should underpin the CBDC project from the start. Fifth, central banks should establish a set of feature requirements based on the earlier steps. Fourth, communication about CBDCs is crucial and a strategy to guide engagement with stakeholders should be developed early on. Third, domestic authorities should undertake a careful assessment of their capacity to experiment with, regulate, oversee, and eventually implement CBDCs. Second, risks must be identified, quantified as much as possible, and accompanied by a strategy to contain them. ![]() First, countries must clearly establish the policy objectives of CBDCs and relevant success measures. ![]() This chapter presents a dynamic framework that is iterative, flexible, and responsive to new information as it arises. If you would like to propose CBDC-related policy questions on which you think the IMF should focus, please contact us at Updated: November 2023Įxploring CBDCs is a significant undertaking that involves complex decisions in a rapidly changing digital environment. The next wave of chapters will likely cover financial stability, comparison with other payment innovations, and end-user adoption among other topics. Moreover, chapters will be periodically updated, reflecting evolving views. As our body of knowledge and analysis grows, we will continue to add about five chapters every year aiming to provide about twenty chapters by 2026. The CBDC Virtual Handbook aims to collect and share knowledge, lessons, empirical findings, and frameworks to address policymakers’ most frequently asked questions on CBDCs. It also serves as the basis for the IMF’s engagement with country authorities and other stakeholders. The IMF’s Central Bank Digital Currency (CBDC) Virtual Handbook is a reference guide for policymakers and experts at central banks and ministries of finance.
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