The Impact of Central Bank Digital Currency on Payments Competition

How would CBDC affect competition in the payments market? If introduced, CBDC can serve as a payment instrument, expanding end users’ transaction choices, and as a platform infrastructure, broadening intermediaries’ opportunities to provide and innovate in payment and financial services. The competitive impact of CBDC depends significantly on the existing payments landscape, regulation, and CBDC design. CBDC may enhance competition in less competitive markets through four key channels: pricing discipline, quality improvements, increased contestability, and broader financial access. In more competitive markets, effects may be more muted and operated through broader access to payments. Policymakers should ensure that CBDC design features foster competition, especially through intermediary participation rules, fee structures, holding limits, and interoperability standards.