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This empirical study investigates the implications of the substantial size of central banks’ balance sheets and the potential risks of their gradual normalization. Following the global financial crisis of 2008, central banks worldwide implemented unprecedented monetary stimulus measures, including large-scale asset purchases and unconventional policy tools like quantitative easing (QE). As a result, central bank balance sheets expanded significantly, reaching historically unprecedented levels in size and composition. While these measures played a crucial role in stabilizing financial markets and supporting economic recovery, concerns have arisen regarding the eventual reduction of these balance sheets and the possibility of disruptive market dynamics. This research examines the challenges and risks of normalizing central bank balance sheets. Furthermore, it explores the potential occurrence of “hard landing” scenarios, where sudden reductions in balance sheets could trigger financial market turmoil and economic downturns. By analyzing historical precedents and theoretical frameworks, this paper offers valuable insights into the intricate relationship between central bank balance sheets and the dynamics of financial markets. It provides policymakers and market participants with valuable perspectives on navigating the path toward monetary policy normalization. [ABSTRACT FROM AUTHOR]

Money was a centre of economic gravity from its inception. It evolved from gold to fiat currency, and now we face a new era of monetary evolution. Every step of development gives him new power to influence society by reaching more and more aspects of social life. With its influence were unknown risks and concerns toward monetary systems flexibility and sustainability. Using a promise to pay as money (banknote) has several critical legal and technical inconsistencies with the token-based CBDC system. One significant limitation is that promissory notes may not have a unique serial number like physical currency printed by central banks. In the modern hybrid monetary system where only cash has a unique serial number and banks' electronic payments work on an account-based approach, the incompatibility of promise to pay with real money is not visible widely. Overall, the role of fractional reserve banking and the money multiplier in a token-based CBDC system will play a different role than in traditional banking systems, given the unique characteristics of digital tokens and the role of central banks in issuing and controlling them. By analysing these key aspects, this paper aims to provide a comprehensive understanding of the potential effects of CBDCs on fractional reserve banking. The findings of this research will contribute to the ongoing discussions and debates surrounding the adoption and implementation of CBDCs, enabling policymakers, regulators, and banking institutions to make informed decisions in this challenging era of digital currencies. [ABSTRACT FROM AUTHOR]

The 21st century began with a crisis. First it was the 2008 Financial Crisis that led to the Great Recession. The aftermath of the crisis was not fully overcome and we have faced another crisis that erupted in the healthcare system. The COVID 19 pandemic brought the second wave (after the 2008 Financial Crisis) of global financial and economic shocks. Since 1944, we have had a global financial order shaped on the Bretton Woods Conference. The system showed solid performance till 2008, but the Financial Crisis empirically tested the existing deficiencies. In the US and other states, enormous monetary and fiscal interventions had to be done for saving the economies and the banking sectors especially. Sovereign debt had been a main source of funding for measures to maintain the economy. From a financial perspective, the same is being done now to cope with the COVID 19 pandemic shocks. [ABSTRACT FROM AUTHOR]

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