The United States Federal Reserve Board, in a report made public on November 17, highlighted the importance of compensation in relation to the development of a central bank-issued digital currency (CBDC). Part of the Federal Reserve’s Finance and Economics Discussion Series, this essay investigates the theoretical literature on CBDCs in large, industrialized countries, with a primary focus on the United States. It investigates the potential benefits and drawbacks of instituting a CBDC for the banking system, with particular emphasis on the crucial role that CBDC design plays in conducting monetary policy and compensation (interest payments).

The authors conclude that a CBDC can help in managing the Fed’s balance sheet by making CBDC holdings more or less attractive compared to bonds, and that the establishment of such a CBDC can also help in the control of the banks. disintermediation According to the authors, “remuneration is without a doubt the key aspect of design that any central bank would like to study.” The following is what they later affirm:

Because CBDCs do not earn interest, their sole purpose is to act as a medium of exchange, and their value is based almost entirely on their acceptability as a means of payment. Conversely, a CBDC’s compensation rate could be used as a policy tool in addition to making the CBDC more attractive as a vehicle for wealth accumulation. This would add to the goal of making CBDC more desirable.

Proportional interest that is reported as a percentage or stepped interest that increases or decreases in a non-linear reaction to the value of a holding can be used as a policy tool. Staggered interest is more common.