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  • Writer's pictureArka Roychowdhury

CBDC and the Central Bank Balance Sheet

Updated: Apr 12, 2023

Unlike other cryptocurrencies (including stable coins), CBDC is a digital currency issued by a central bank of a country which is represented as a direct liability of the central bank.


Let's dissect the above statement.

Here is the balance sheet of Reserve Bank of India.

If you draw your attention to the liability side if this balance sheet, you will notice this item- Notes issued. These are all the notes/currencies that are circulating in the economy as cash.


https://www.rbi.org.in/Scripts/AnnualReportPublications.aspx?Id=1354

I encourage you to look in the annual reports and balance sheets of other central banks. For example here I have the balance sheet of Bank of Canada- you can clearly see where notes under circulation is placed.


https://www.bankofcanada.ca/wp-content/uploads/2022/02/annual-report-2021.pdf


Hopefully you can now guess, the positioning of Central Bank Digital Currencies (CBDCs) in the balance sheet of central banks.


BIS has this very nice diagram depicting CBDC clearly as a component of the liability in the central bank balance sheet


https://www.bis.org/publ/arpdf/ar2021e3.pdf


Of course there are many more nuances to the design of CBDC- such as retail and wholesale CBDC, direct vs indirect, classification under M0 or M1 etc… but in this blog I wanted to build up on the idea the a Central Bank Digital Currency (whether on Blockchain or not on Blockchain) after all is a liability of the Central Bank balance sheet.




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