Fed paper looks at theoretical role of remuneration, convenience in CBDC design By Cointelegraph

The importance of remuneration in the design of a central bank digital currency (CBDC) was emphasized in a paper released by the United States Federal Reserve Board on Nov. 17. The paper, part of the Fed’s Finance and Economics Discussion Series, reviews the theoretical literature on CBDCs in large, developed economies, with a particular view to the United States. It looks at the risks and benefits to the banking system of introducing a CBDC, with a particular focus on the role of CBDC design in the implementation of monetary policy and remuneration — that is, payment of interest — as a critical design feature.

A CBDC could help control bank disintermediation resulting from its introduction, the authors find, and it can help in the management of the Fed’s balance sheet by making the holding of CBDCs more or less attractive relative to bonds. The authors conclude that “Remuneration is arguably the key design feature that any central bank would want to contemplate.” They go on to say: