Core Focus: The potential for CBDCs to transform monetary policy transmission, including the interest-bearing CBDC as a tool for policy implementation, the impact on bank lending and deposit rates, and the implications for the effective lower bound.

In-Depth Notes:
The question of whether a CBDC should be interest-bearing is one of the most consequential design choices for monetary policy. A zero-interest CBDC is a straightforward substitute for cash. An interest-bearing CBDC, however, introduces a new instrument for monetary policy with potentially far-reaching implications .

The Interest-Bearing CBDC and Monetary Policy:
An interest-bearing CBDC would give the central bank the ability to influence monetary policy transmission directly to households and businesses, without passing through the commercial banking system. An interest-bearing CBDC could affect the pass-through of policy rates to bank deposit and lending rates and the credit channel, as it would provide a risk-free alternative to bank deposits that could compete with bank funding . This would make monetary policy more direct and could potentially reduce the effective lower bound on policy rates, enabling negative rate policies.

Modelling the Impact of CBDC Design:
Academic research has developed models to assess the macroeconomic implications of CBDC design choices. A model with two access mechanisms (account-based and token-based) and varying levels of anonymity and remuneration examines how users choose between cash, deposits, and two types of CBDC . The model shows that, under a benchmark scenario in which both types of CBDC are entirely managed by the central bank, the impact on financial stability depends on the interest rate on CBDC balances and the degree of substitutability between CBDC and deposits .

The Role of the Hybrid Model:
A hybrid institutional arrangement in which the account-based CBDC is distributed and managed by commercial banks—who could then use these balances to issue loans—can mitigate the disintermediation risk . This setup aligns with the hybrid CBDC architecture proposed in the literature and enables an evaluation of how such arrangements affect equilibrium outcomes and welfare . The findings suggest that the hybrid model leads to fewer maturity transformations, reducing the risk of bank disintermediation .

Implications for Financial Stability:
An overly attractive CBDC could lead to rapid withdrawals from commercial banks, impairing their ability to lend. This concern underscores the importance of careful design. The IMF has noted that the introduction of an interest-bearing CBDC could have significant implications for bank funding and lending . The policy choices are decisive: macroeconomic effects frequently arise not from the introduction of CBDC per se, but from assumptions about accompanying policy choices, such as the remuneration of CBDC and the regulatory treatment of bank deposits relative to central bank credit facilities