The macroeconomics of central bank digital currencies

We study the macroeconomic consequences of issuing central bank digital currency (CBDC) - a universally-accessible and interest-bearing central bank liability that competes with bank deposits as medium of exchange. In a DSGE model calibrated to match the pre-2008 US, we find that CBDC issuance of 30...

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Bibliographic Details
Published inJournal of economic dynamics & control Vol. 142; p. 104148
Main Authors Barrdear, John, Kumhof, Michael
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.09.2022
Subjects
Bank lending
Banks
Blockchain
Central bank digital currency
Countercyclical policy
Distributed ledgers
Endogenous money
Financial intermediation
Money creation
Money demand
Seigniorage
E51
Distributed ledgers
E42
E41
E52
Seigniorage
E44
Money creation
Countercyclical policy
Blockchain
G21
Money demand
E58
Endogenous money
Financial intermediation
Central bank digital currency
Bank lending
Banks
Online AccessGet full text
ISSN0165-1889
1879-1743
DOI10.1016/j.jedc.2021.104148

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Summary:We study the macroeconomic consequences of issuing central bank digital currency (CBDC) - a universally-accessible and interest-bearing central bank liability that competes with bank deposits as medium of exchange. In a DSGE model calibrated to match the pre-2008 US, we find that CBDC issuance of 30% of GDP, against government bonds, could permanently raise GDP by 3%, due to lower real interest rates, distortionary taxes, and monetary transaction costs. Countercyclical CBDC policy rules, as a second monetary policy tool, could substantially improve the central bank’s ability to stabilise the business cycle. Risks to banks can be minimized through appropriate issuance arrangements.
ISSN:0165-1889
1879-1743
DOI:10.1016/j.jedc.2021.104148