The public debate about retail central bank digital currency (CBDC) has centred around a range of concerns. Some focus on the potential for competition and innovation in the payments sector (Andolfatto 2021). Others highlight privacy issues, particularly the risk of state surveillance (van Oordt 2025). Still others view CBDC through the lens of monetary sovereignty — and even national sovereignty — in a world shaped not only by global technology platforms but also by the geopolitical influence of foreign currencies and policies (Bindseil and Cipollone 2025, Lane 2025).

While these issues are important, they can obscure a more fundamental point: CBDC is not just another digital payment tool. It is state-issued money, with the potential to fundamentally reshape monetary systems by altering how money is created and distributed, and by whom. In Niepelt (2026), I explore this perspective by reviewing the literature on CBDCs and discussing its broader implications.

Public money

At its core, CBDC grants households and firms direct access to central bank liabilities in digital form. Unlike bank deposits, which are private claims convertible into central bank money, CBDC constitutes public money outright. If adopted at scale, it could displace deposits and alter the funding structure of banks.

The central macroeconomic question is how such a shift would change economic outcomes.

A useful benchmark is neutrality. A change in monetary architecture is neutral if it leaves the equilibrium allocation — including bank lending, investment, and output — unchanged, even if balance sheets look different. Under fairly general conditions, the introduction of CBDC can satisfy this benchmark. Even if deposits are displaced, banks need not lose their capacity to extend credit, provided the central bank recycles the funds raised through CBDC issuance back to banks on deposit-equivalent terms. In that case, the composition of bank liabilities changes, but the supply of credit need not (Brunnermeier and Niepelt 2019).

This result is robust. It does not require frictionless markets and holds in general equilibrium. Limited competition, price rigidities, maturity transformation, liquidity premia, a bank lending channel, regulatory constraints, or even financial fragility are compatible with a neutral shift in monetary architecture.

Fundamental versus policy-related non-neutrality

Non-neutrality arises when CBDC changes economic fundamentals.

In the nonbank sector, neutrality fails when the liquidity services of CBDC and deposits are not linearly substitutable — a rather implausible scenario — or when they relate to different dimensions of liquidity or convenience. In the banking sector, it fails when deposits are ‘special’ — that is, when they fulfil roles beyond simply providing funds that alternative sources cannot replicate. At the systemic level, neutrality may break down when the general equilibrium implications of CBDC and deposits differ, for example because the two instruments generate distinct network effects, externalities, or resource costs.

Rather than focusing on such fundamental, structural sources of non-neutrality, much of the existing literature emphasises policy-related sources, often without making them explicit. Macroeconomic effects frequently arise not from the introduction of CBDC per se, but from assumptions about accompanying policy choices, which are treated as secondary yet are, in fact, decisive. Examples of such assumptions include those regarding the remuneration of CBDC, the regulatory treatment of bank deposits relative to central bank credit facilities, and the design of the central bank’s operating framework. Alter these assumptions, and results that seem to demonstrate the transformative effects of CBDC may collapse to neutrality.

The role of policy design is therefore central, but not always clearly acknowledged. This matters for how the debate is framed. If the macroeconomic consequences of CBDC depend primarily on standard accompanying policy choices, the case for heavy-handed restrictions — particularly tight holding limits — is considerably weakened. And if narratives suggest that the introduction of CBDC undermines financial stability, they must confront the misattribution of responsibility: the banking sector is fragile to begin with, and the introduction of CBDC need not, in itself, add to that fragility. In fact, under a neutral regime change, the nature and extent of fragility remain unchanged.

In this respect, public digital money differs significantly from private payment innovations. The issuers of cryptocurrencies, stablecoins, or tokenised deposits pursue independent objectives, which means policymakers have limited control over their macroeconomic footprint. By contrast, a CBDC is embedded in the central bank’s balance sheet and operating framework. Its economic impact is shaped by policy instruments under the control of public authorities.

Politics

Neutrality should not be mistaken for irrelevance. The fact that a neutral CBDC introduction leaves the equilibrium allocation unchanged does not imply that CBDC cannot improve (or worsen) outcomes; it can do so when paired with non-neutral policies. By expanding the set of implementable equilibria, CBDC can enable better results — such as when the central bank replaces small depositors as bank creditors and internalises run externalities. In this sense, neutrality sets a natural lower bound on CBDC’s potential.

However, under non-neutral policies, a shift in monetary architecture changes who captures the rents from money creation and how risks are shared between the public sector and private intermediaries. Decisions on CBDC design — such as remuneration and holding limits — thus are inherently distributive. By converting private into public money and decoupling bank funding from liquidity provision, CBDC makes these distributive consequences more visible and policymakers more accountable. It also heightens the political stakes for banks, whose funding cost savings — including from the liquidity premia they benefit from — become more directly tied to central bank decisions, creating incentives to resist CBDC.

The shift in monetary architecture thus should not be seen merely as a narrow upgrade to the payments system. It represents a potential redesign of the topology of banking and of the relationship between the state and the financial sector. These issues deserve a broad discussion. Central banks are natural contributors to this conversation, but they are not uniquely equipped to determine its outcome. After all, the key question is not whether CBDC changes monetary policy or affects financial stability, but which monetary architecture delivers liquidity and convenience to Main Street at minimum social cost. Whether today’s system achieves that is far from clear.

Ultimately, the macroeconomic significance of CBDC is shaped by policy choices, and political economy determines whether CBDC becomes a significant factor. To understand CBDC policy, don’t just think macro — think political economy.

References

Andolfatto, D (2021), “Assessing the impact of Central Bank Digital Currency on private banks”, Economic Journal 131: 525-540.

Bindseil, U and P Cipollone (2025), “Central bank electronic cash and monetary sovereignty”, in D Niepelt (ed.), Frontiers of Digital Finance, CEPR Press.

Brunnermeier, M K and D Niepelt (2019), “On the equivalence of private and public money”, Journal of Monetary Economics 106: 27-41.

Lane, P R (2025), “The digital euro: Maintaining the autonomy of the monetary system”, speech at University College Cork Economics Society Conference, Cork, 20 March.

Niepelt, D (2026), “Central bank digital currency and monetary architecture”, CEPR Discussion Paper 21141.

Van Oordt, M R C (2025), “Transforming the digital euro proposal from a threat into an opportunity for privacy”, in D Niepelt (ed.), Frontiers of Digital Finance, CEPR Press.