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Central Bank Digital Currency and Monetary Policy
| Content Provider | Scilit |
|---|---|
| Author | Davoodalhosseini, Seyed Mohammadreza |
| Copyright Year | 2017 |
| Description | Journal: SSRN Electronic Journal Many central banks, including the Bank of Canada, are contemplating whether to issue central bank digital currency (CDBC) or not. If they do, CBDC will coexist with other means of payments including cash. CDBC has certain possible advantages including the possibility that it can bear interest rate. On the other hand, cash may be preferred by agents over CBDC, perhaps because agents can remain anonymous by using cash. Interactions between cash and CBDC have not been understood well in the literature. I put together a model in which cash and CBDC co-exist and agents with heterogeneous transaction needs can choose their portfolios with varying mixtures. Using this model, I investigate how monetary policy is affected by the introduction of CBDC, and study the circumstances under which such introduction is desirable. I show that CBDC provides more flexibility for the central bank to conduct monetary policy. In an empirical exercise, the welfare gains of introducing CBDC is estimated to be up to 0.7% for Canada.To elaborate on the theoretical results, the co-existence of cash and CBDC is socially optimal under some parameter values for the preferences and distribution of agents' transaction needs, while using the same means of payment for all agents yields higher welfare under other parameter values. The latter case is more frequent in my numerical examples, suggesting that the removal of cash may be a welfare-enhancing policy if CBDC is optimal to be issued. When co-existence is optimal, the optimal cash inflation is strictly positive, and agents use cash in small value transactions and use digital currency in large value transactions. |
| Related Links | https://www.econstor.eu/bitstream/10419/197889/1/1027813542.pdf https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=3011401 |
| ISSN | 10914358 |
| e-ISSN | 15565068 |
| DOI | 10.2139/ssrn.3011401 |
| Journal | SSRN Electronic Journal |
| Language | English |
| Publisher | Elsevier BV |
| Publisher Date | 2017-08-02 |
| Access Restriction | Open |
| Subject Keyword | Journal: SSRN Electronic Journal |
| Content Type | Text |
| Resource Type | Article |
| Subject | Public Health, Environmental and Occupational Health Psychiatry and Mental Health |
