Central Bank Digital Currencies
Paper Session
Friday, Jan. 7, 2022 3:45 PM - 5:45 PM (EST)
- Chair: Jonathan Chiu, Bank of Canada
Monetary Policy with Reserves and CBDC: Optimality, Equivalence, and Politics
Abstract
We analyze policy in a two-tiered monetary system. Noncompetitive banks issue deposits while the central bank issues reserves and a retail CBDC. Monies differ with respect to operating costs and liquidity. We map the framework into a baseline business cycle model with “pseudo wedges” and derive optimal policy rules: Spreads satisfy modified Friedman rules and deposits must be taxed or subsidized. We generalize the Brunnermeier and Niepelt (2019) result on the macro irrelevance of CBDC but show that a deposit based payment system requires higher taxes. The model implies annual implicit subsidies to U.S. banks of up to 0:8 percent of GDP during the period 1999-2017.Central Bank Digital Currency and Banking: Macroeconomic Benefits of a Cash-like Design
Abstract
Should a central bank digital currency (CBDC) be issued? Should its design be cash- or deposit-like? To answer these questions, we theoretically and quantitatively assess the effects of a CBDC on consumption, banking and welfare. Our model introduces new general equilibrium linkages across different types of retail transactions as well as a novel feedback effect from transactions to deposits creation. The general equilibrium effects of a CBDC are decomposed into three channels: payment efficiency, price effects and bank funding costs. We show that a cash-like CBDC is more effective than a deposit-like CBDC in promoting consumption and welfare. Interestingly, a cash-like CBDC can also crowd in banking, even in the absence of bank market power. In a calibrated model, at the maximum, a cash-like CBDC can increase bank intermediation by 5.8% and capture up to 25% of the payment market. In contrast, a deposit-like CBDC can crowd out banking by up to 2.6% thereby grabbing a market share of about 16.7%.Parallel Digital Currencies and Sticky Prices
Abstract
The recent rise of digital currencies opens the door to their use in parallel alongside official currencies (“dollar”) for pricing and transactions. We construct a simple New Keynesian framework with parallel currencies as pricing units and sticky prices. Relative prices become a state variable. Exchange rate shocks can arise even without other sources of uncertainty. A one-time exchange rate appreciation for a parallel currency leads to persistent redistribution towards the dollar sector and dollar inflation. The share of the non-dollar sector increases when prices in the dollar sector become less sticky and when firms can choose the pricing currency.Discussant(s)
Shota Ichihashi
,
Bank of Canada
Daniel Sanches
,
Federal Reserve Bank of Philadelphia
Michael Choi
,
University of California-Irvine
Russell Wong
,
Federal Reserve Bank of Richmond
JEL Classifications
- E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit
- E4 - Money and Interest Rates