A Central Bank Digital Currency (CBDC) is a form of digital money that is denominated in the national unit of account, constitutes a direct liability of the central bank, and can be distinguished from other central bank liabilities. We examine the positive and negative implications for financial stability of a CBDC under different design options. We base our analysis on the lessons derived from historical case studies as well as on analytical frameworks useful to characterize the mechanisms through which a CBDC can affect financial stability. We further discuss various policy tools that can be employed to mitigate financial stability risks.
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Carapella et al. (2024) studied this question.
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