The Impact of Central Bank Digital Currency on the Money Multiplier: A Comparative Analysis of Design Schemes across Countries (Financial economics research.)

Summary

• The paper compares China's e-CNY, Sweden's e-krona and the Bahamas' Sand Dollar across interest-bearing rules, operational architecture and substitution targets.p.1
• Interest-bearing rules determine whether a CBDC has saving attributes and how strongly it substitutes for deposits.p.1
• A non-interest-bearing CBDC positioned as a cash substitute can minimize the shock to the money multiplier.p.1
• The e-CNY is positioned as M0, pays no interest and follows a two-tier operational architecture.p.3
• Both the e-CNY and the Sand Dollar are non-interest-bearing, whereas the e-krona explicitly discusses an interest-bearing option.p.4
• Mass conversion of deposits during market stress could make the reserve ratio jump and the money multiplier plummet, so holding caps must be coordinated with central-bank liquidity tools.p.5

Key insights

1. When the public converts bank deposits into CBDC, commercial banks' loanable funds shrink and money creation is disrupted.p.2
2. The e-CNY mainly raises the cash leakage ratio mildly, leaving the reserve ratio and time deposit ratio essentially unaffected.p.3
3. Cash substitution exerts a mild shock on the money multiplier, whereas deposit conversion brings a significant shock.p.4
4. Interest rules determine the incentive to convert, and holding constraints determine the upper bound of conversion scale.p.4
5. Interest-bearing design, deposit substitution or absent holding constraints may amplify disintermediation and multiplier contraction.p.5
6. CBDC traceability improves anti-money-laundering efficiency but poses a potential threat to public data privacy.p.5