Central Bank Digital Currency in an Open Economy

Abstract

This paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB.

Rise of the Central Bank Digital Currencies: Drivers, Approaches and Technologies

“…Another area is the systemic implications of CBDCs and how to cope with them Niepelt (2019), Fernández-Villaverde et al (2020), Kwon et al (2020), Carletti et al (2020)). There is also work on policy design frameworks (Davoodalhosseini and Rivadeneyra (2020), Agur et al (2019), Allen et al (2020)), their implications for cross-country payments (Milkau (2019)), implications for the international role of currencies (Ferrari et al (2020) and legal aspects of their issuance (Hess (2020), Duque (2020), Nabilou (2020), Belke and Beretta (2019)).…”

Revisiting the Properties of Money

“…Supply measurability can be hard to achieve, especially in privacy oriented cryptocurrencies, due to "hidden inflation" -an unrecorded increase in the money supply -which could occur due to invalid computational assumptions or bugs in the code. 17 This is not only a theoretical risk: such a flaw occurred in the implementation of ZCash (see Supplementary Material A). 18 Interestingly, there is no definitive way to know whether that bug was exploited, and therefore, what is the total supply of ZCash.…”

“…The framework proposed in this paper could also be used to study the trade-offs inherent in money design choices, such as those discussed in Agur et al (16) and Ferarri et al (17). Selecting one set of properties will necessarily entail excluding others.…”

“…The time-inconsistency problem makes such commitments difficult for central banks, since it would sometimes require implementing an undesirable policy at a future date(87) 17. Note that "inflation" here refers to the amount of money in circulation, rather than the growth rate of the price level 18.…”

Central Bank Digital Currency: When Price and Bank Stability Collide

“…In comparison, we are more explicit about the micro incentives of agents to run on the central bank. Ferrari et al (2020) discuss monetary policy transmission in a two-country DSGE model when introducing a CBDC. In our model, we focus on one country and do not feature firms, other financial agents, or assets.…”