The Interpretation of CBDC Within An Endogenous Money Framework

Central bank digital currency (CBDC) has increasingly received attention among policymakers and academics. From a theoretical perspective, the introduction of a CBDC arouses long-standing questions, foreseeing the possibility for the private (non-financial) sector to access the central bank reserves. The aim of this paper is to strengthen the understanding of the CBDC through the Endogenous Money Theory (EMT). The paper examines the balance sheets of the central bank, commercial banks, and the non-financial private system, tracking all the assets and liabilities of the macro-agents involved in the introduction of a CBDC. It explains the logical chain of relationships starting with the creation of bank loans from commercial banks, transformed into deposits, and ultimately converted into CBDC. Such a chain of relationships is also explained by amending the four quadrants model proposed by many post-Keynesian scholars.