a. Several central banks are considering the issuance of Central Bank Digital Currency (CBDC). Based on Bank of England (2020), discuss the potential impact of CBDC on the balance sheet of central banks and commercial banks. Relatedly, how can CBDC affect monetary policy in normal times?

b. Based on Holmstrom and Tirole (1997), discuss how the monitoring role of financial intermediaries can alleviate credit constraints. How did financial innovation preceding the Global Financial Crises erode such monitoring?