Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/241233 
Year of Publication: 
2021
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2021-10
Publisher: 
Bank of Canada, Ottawa
Abstract: 
This paper investigates how the introduction of an interest-bearing central bank digital currency (CBDC) that serves as a perfect substitute for bank deposits as an electronic means of payment affects monetary policy pass-through. When the deposit market is not fully competitive, the CBDC tends to weaken the pass-through of the interest on reserves. The interest on CBDC impacts the deposit market more directly compared with the interest on reserves. The CBDC rate can also have stronger pass-through to the loan market; however, the effect can be dampened by the policy on the interest on reserves. Therefore, coordination between the two policy rates is needed to effectively achieve policy goals.
Subjects: 
Digital currencies and fintech
Monetary policy transmission
JEL: 
E50
E52
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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