Understanding the Impact of Retail CBDCs on Banking

In the last few years, the number of papers written about CDDCs has exploded as the world’s central banks rush to think about and investigate them. The Bank of Canada (BOC) has carried out a literature review focusing in particular on the potential impact of introducing a CBDC on private banks, which it has published as a staff discussion paper ¹. As part of this work, it has also identified some key research gaps where further work is needed.

The role of banks is threefold – to provide payment services, to lend and to enable liquidity and maturity transformation.

Banks lend money for investment in long- term illiquid projects by issuing short-term liquid deposits to consumers. They use these for transactions. Banks fill the role of liquidity transformers for the economy. The question is whether, or to what extent, might a CBDC disrupt this.