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Continuing our series of reports on how a UK retail central bank digital currency (CBDC) could be launched by the Bank of England and HM Treasury, this third report looks at the potential impact of CBDC implementation on credit creation for the UK economy.
This paper further explores the Bank’s illustrative scenario presented in the “New forms of digital money” discussion paper. In particular, the impact of a retail UK CBDC on credit creation and financial stability, thus, helping to enhance the understanding of the risks posed by a UK CBDC and to support identification of mitigants. Following the Bank’s paper, the report starts by looking at the demand for a CBDC, then considers an initial impact on commercial banks, their potential response measure options and the resultant impact on credit creation, in terms of lending volumes and rates. This analysis is provided along with an assessment of implications for financial stability and potential impact on the wider economy.
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