Central banks can implement negative nominal interest rates through tiered deposit systems.
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Peer-reviewed literature demonstrates that central banks use tiered remuneration and reserve systems to implement negative interest rate policies while reducing financial stability risks.
We identify the effects of negative interest rate policies on bank behavior using difference-in differences identification and data on all Swiss banks. First, we find that going negative can interrupt not only the pass-through from policy to deposit rates, but also that to mortgage rates. Second, banks’ ability to offset negative deposit margins with increased mortgage margins is shown to depend on market power. Third, imposing negative rates on all central bank reserves causes banks to replace one sixth with riskier assets, and cut another sixth without replacement, shortening their balance sheets. Together with increased mortgage margins and fee income, the asset replacement preserves profits, but increases financial stability risks. Fourth, mortgage margin increases, balance sheet contractions and risk increases differ from positive rate policy. Fifth, the interruption in pass-through and the risks to financial stability can be reduced by up to 90% through tiered remuneration, charging marginal reserves only.
The spread and popularization of cryptocurrencies, as well as the rapid digitalization of the payment sector, have prompted many monetary authorities, including the Bank of Russia, to develop central bank digital currencies (CBDCs). The upcoming launch of the digital ruble makes it relevant to study the consequences of its implementation. The purpose of this paper is to study the prospects for launching CBDCs in Russia based on existing international experience. For this purpose, firstly, an overview of the main risks and consequences of issuing digital currencies was conducted. Secondly, through statistical and graphical analysis, the practical experience of the circulation of eNaira (Nigeria), Sand Dollar (Bahamas) and e-CNY (China) was studied, taking into account country differences in inflation and interest rates: the impact of CBDC emission on the dynamics of narrow money supply components; cross-country comparison of the speed of digital currency spread relative to cash and narrow money supply. Third, factors influencing the level and heterogeneity in the speed of digital currency spread were summarized. Fourth, based on the experience gained, the prospects for launching the digital ruble were analyzed. The main concerns regarding the emission of the CBDC are related to the risks of disintermediation and "bank runs" during crisis episodes. In order to be able to control possible negative consequences, monetary authorities, including the Bank of Russia, install in the design of the digital currency the absence of interest payments, a two-tier administration system, limits on the volume of transactions and storage. The experience of Nigeria, the Bahamas and China indicates, firstly, that the main concerns regarding the launch of the CBDC will not come true in the first years of circulation, and secondly, that the new means of payment is rolling out extremely slowly. The analysis highlights the importance of careful planning of the strategy for implementing the digital ruble, including multiple channels for informing people about the advantages of the new means of payment, as well as ensuring a wide coverage of sellers and scenarios for using the digital currency of the Bank of Russia.
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