Central bank digital currency. Aims, mechanisms and macroeconomic impact

Introduction: According to the Bank of International Settlements, at least 40 central banks around the world are currently, or soon will be, researching and experimenting with Central Bank Digital Currency (CBDC) (Barontini and Holden, 2019). CBDC can have different attributes, such as, for example, being enabled by distributed ledger technlogy (DLT), being wholesale or general purpose. However, CBDC can be generally defined as some form of central bank money handled through electronic means and accessible to the broad public (Bindseil, 2020). To some extent, CBDC might resemble the functions and characteristics of cash. Hence it might act as an anonymous legal tender that allows fast intertemporal and international transactions at virtually zero cost, without the need of third trust parties, such as banks. Thus it is apparent that CBDC can have huge impact on the banking industry and on the economy as a whole. The objective of this chapter is to employ the most up-to-date literature to shed light on the aims, working mechanisms and likely macroeconomic impact of CBDC. The rest of the chapter is organized as follows. The second section describes and compares current payment systems to DLT-based ones. The third section explains the working mechanisms of CBDC, providing some real-world examples, and it discusses some of the potential benefits and macroeconomic risks associated with CBDC. Final remarks conclude.