The Impact of the Issuance of CBDC on Monetary Policy——From the Perspective of Narrow Monetary Multiplier

Abstract

With the fast development of global financial technology, the central bank digital currency (CBDC) has gradually become a new direction for countries to explore. As a digital shape of legal currency, CBDC not only helps to enhance payment system efficiency, but also brings new changes to engaging in the digital era. China shows the importance of CBDC in the monetary system by introducing digital RMB (e-CNY) and incorporating it into M₀ statistics. However, the appearance of CBDC has generated many impacts to the traditional currency system, especially in terms of money supply mechanism, liquidity management of commercial banks and financial stability. Through theoretical analysis and empirical research, this paper discusses the influence of CBDC on narrow monetary multipliers. This paper found that the increase in the liquidity of CBDC has a certain inhibitory effect on the narrow monetary multiplier, and the market share of digital currency payment has significantly affected the change of the monetary multiplier. In addition, the short-term impact effect is relatively obvious, but it tends to decline in the long term. This paper provides a new perspective for understanding the possible effects of CBDC on monetary policy, and also points out the risks and challenges that need attention in future policy formulation.