Finadium: Central Bank Digital Currencies, Cryptocurrencies and Collateral

Central banks face new competition in their issuance of currency: cryptocurrencies have captured the popular imagination, if not yet the actual spending behavior of most consumers. Even so, central banks and regulators are developing strategies for how to respond to cryptocurrencies including potential bans, treating them as commodities or requiring government supervision. One possible response is to adopt the technology and strategies of cryptocurrencies by issuing a central bank digital currency.

As central banks explore their options, it is clear that a widespread introduction of central bank digital currency would have far-reaching implications for setting monetary policy and the regulation of cryptocurrencies themselves. Central bank digital currencies could also have potentially destabilizing impacts on commercial banks, which occupy a critical role in the transmission of monetary policy and funding of the real economy. In turn, central bank digital currencies could fundamentally impact expectations and product development in capital markets, including derivatives and collateral management.

For capital market participants, central bank digital currencies would allow, for example, new interventions in managing consumer demand for money that would impact interest rates and inflation in ways that have been seen before, but never on a large scale nor with so much information available about economic systems. Some of these changes would nip at the heels of currency financial markets. Others could upend longstanding assumptions.

This Finadium research report investigates current developments in central bank digital currencies, from trial balloons to actual projects underway. We look at the monetary policy opportunities and challenges posed and how financial market participants may want to consider their responses. This report should be read by financial markets professionals interested in the future of money, cryptocurrency, central bank digital currencies and product development in capital market activities.

Finadium subscribers to our Securities Finance, Collateral and Derivatives series, and to our Fintech Capital Markets series, can log in here to access this report.

A direct link to the report for Finadium research clients, when logged in, is http://finadium.com/finadium-report-desc/central-bank-digital-currencies-cryptocurrencies-and-collateral/

For non-subscribers, more information is available here.

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