Ulrich Bindseil, Fabio Panetta, 05 October 2020

The prospect of central bank digital currency has raised concerns over its potential to cause structural (i.e. permanent) or cyclical (i.e. crisis-related, temporary) bank disintermediation. Moreover, negative interest rate policy is incompatible with the unconstrained supply of zero-remunerated central bank digital currency. This column argues that a two-tier remuneration system for the currency would be an efficient solution to these issues. It would allow households to access the digital currency as a means of payment with non-negative remuneration and would also make it possible to overcome the perceived dichotomy between ‘retail’ and ‘wholesale’ central bank digital currencies. 

Oliver de Groot, Alexander Haas, 16 June 2020

The magnitude of the COVID-induced economic downturn is forcing central banks around the world to rethink the set of monetary policy tools available to them. Many central banks have long shied away from negative interest rates, concerned about the impact on bank profits and financial stability. This column explores how negative interest rate policies can be used by central banks to signal a commitment to a prolonged period of monetary accommodation. Using a quantitative monetary model, it shows that the signalling channel of negative interest rates can result in a rise in banks’ net worth even if net interest margins shrink.

Events

CEPR Policy Research