In this video, Sabrina Rochemont analyses how central banks might implement CBDCs and how they might affect the financial system. Sabrina explores the impact of CBDCs on fractional reserve banking, as banks are currently the main creators of money. One of the concerns around CBDCs is that they might reduce the ability of banks to create money, in turn reducing the loans banks can offer and inadvertently increasing the interest rates bank charge. Sabrina outlines several policies that she thinks may combat these risks to the traditional banking system.
Key learning objectives:
Understand the impact CBDCs might have on the traditional banking system
Recognise how policies could be used to mitigate the risk to the traditional banking system posed by CBDC implementation
Identify the arguments for and against the use of a retail CBDC in an advanced economy