Economics · Central Bank Digital Currency & Money Supply
If a Central Bank Digital Currency (CBDC / e-Rupee) is widely adopted and public funds shift from commercial bank demand deposits into non-interest-bearing CBDC wallets held with the central bank, what is the most direct macroeconomic consequence on the banking system?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Commercial banks gain higher lending capacity as money velocity automatically increases.
- 2Reserve Money (M0) becomes zero because e-Rupee is not considered central bank liability.
- 3Broad Money (M3) credit expansion capacity decreases due to disintermediation and loss of bank deposit base.✓
- 4Narrow Money (M1) decreases because digital currency is excluded from monetary aggregates.
Correct answer
Broad Money (M3) credit expansion capacity decreases due to disintermediation and loss of bank deposit base.
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