Some say that issuance of the interest-bearing retail CBDC could potentially improve the transmission of monetary policy – if indeed it is used widely. First, it may strengthen the passthrough of the policy rates to deposit and lending rates. Second, the CBDC may alleviate the effective lower bound constraint, making it possible to go deeper into the negative territory.
Arguably, the retail CBDC could also have positive effects on financial stability. Commercial bank money bears liquidity risks: for instance, the risk of commercial bank default. Central bank money – by definition – is more secure than claims on any private financial institution. This holds true despite the existing deposit insurance schemes and no matter how sound the banking system is.