Digital currencies of central banks: Key characteristics and problems of the organization of monetary circulation

Subject. The article discusses the potential use of digital currencies as a new form of money that is explored by various central banks around the world. Such innovations may alter the structure of money circulation, and have ambiguous effects on the transmission mechanism of monetary policy. Objectives. The aim is to explore the key characteristics of central bank digital currencies (CBDCs) design and their impact on the monetary system. Methods. The study draws on general scientific methods, i.e. analysis, synthesis, comparison, scientific abstraction, typology, generalization, mathematical analysis and modeling, deduction and induction. Results. The paper presents a general definition of CBDCs and highlights the main challenges associated with their issuance. It suggests that the most suitable concept is interest-bearing CBDCs with indirect free exchange for reserves and non-guaranteed convertibility into deposits. This configuration of the monetary system allows the central bank to have a new monetary policy tool at its disposal and address a number of issues related to the use of CBDCs. Conclusions. The design of CBDCs depends on central bank's objectives. If the monetary authority aims to enhance financial inclusion, it should introduce non-interest-bearing, universally accessible CBDCs. However, if the central bank's goal is to acquire a new monetary policy instrument and ensure the stability of the financial system, the CBDCs should provide appropriate yield that corresponds with the central bank’s objectives.