This paper explores the association between the informal economy and the adoption of central bank digital currency (CBDC) by end users, namely households and businesses. Our findings suggest that CBDC may not be widely accepted by end users in the presence of a sizable informal economy in which cash is the primary method of payment. CBDC can decrease informality, but this effect becomes weaker in countries with larger informal economies. Tax reduction and CBDC interest rates can be useful tools to promote the adoption and effectiveness of CBDC, leading to a reallocation effect between formal and informal sectors.
We present a dynamic stochastic general equilibrium (DSGE) model in which a resource-rich government allocates its excess resource rents between a resource stabilization fund and the facilitation of costly domestic fund-raising activities of sovereign wealth funds (SWF), which holds a portfolio of government-linked companies (GLCs). Despite being less productive efficient,
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