Well-designed CBDCs boost welfare despite zero remuneration
A new Bank of Italy study demonstrates that a well-designed central bank digital currency can enhance household welfare and preserve monetary sovereignty without paying interest. The general equilibrium model shows that household portfolio choices across CBDCs, stablecoins, and deposits depend heavily on non-pecuniary convenience features.
Convenience drives digital money choices
The paper develops a general equilibrium model analyzing how households allocate wealth across three digital monetary forms: central bank digital currencies, commercial bank deposits, and stablecoins.
Allocation is governed by convenience-adjusted returns, which combine nominal interest rates with non-pecuniary attributes such as usability, programmability, and privacy.
The findings reveal that an unremunerated CBDC can increase household welfare by 3.2 percent compared to baseline steady states, provided its infrastructure offers high payment efficiency and public trust.
Crucially, the model derives a coexistence pricing bound showing that stablecoin issuers can only sustain fees up to the policy rate plus the convenience differential relative to CBDC.
Risky backing threatens financial stability
Stablecoins backed by fragile reserve structures generate systemic risks and threaten monetary stability.
When issuers hold non-risk-free collateral to boost returns, credit and liquidity premia diminish perceived convenience and can spark redemption runs.
Conversely, upgrading commercial bank payment rails through fast-payment systems and deposit tokenization strengthens deposit convenience.
This preservation of bank intermediation supports monetary policy transmission while mitigating disintermediation risks.
Furthermore, strong network externalities can trigger threshold adoption dynamics, where small design improvements shift the market toward public money dominance.
Design matters more than yield
Central banks do not need to offer interest on digital currencies to compete with private alternatives.
Public money maintains its edge if regulators enforce strict reserve rules on stablecoins while upgrading retail payment rails.
Ultimately, technological usability and institutional trust will dictate the equilibrium of digital finance rather than nominal returns.