Should Central Banks Issue Digital Currency?

Keister, Todd; Sanches, Daniel R.

doi:10.21799/frbp.wp.2019.26

Cited by 72 publications

(45 citation statements)

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“…Specifically, define Ω = α 1 + α 2 + α 3 as the probability of a buyer meeting a seller and therefore consuming in the DM. 26 Defineα i = α i /Ω, i = 1, 2, 3, as the probabilities of being in a type i meeting conditional on being matched with a seller. We can then replace α i with Ωα i .…”

Section: Calibrationmentioning

confidence: 99%

“…The bank's profit will have a minus term cψb compared with the expressions in the previous sections 26. Since the buyer may not meet a seller in the DM in every period, Ω can be less than 1 27.…”

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confidence: 97%

“…5 Our study is closely related to two concurrent papers that discuss the effects of a CBDC in a micro-founded model with money and banking. Keister and Sanches (2019) focus on the welfare implications of an interest-bearing CBDC when the banking sector (modelled as a bank-firm combination) is fully competitive. The bank is subject to credit constraints due to limited pledgeability of the returns on their projects, so the level of investment can be inefficiently low.…”

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Central Bank Digital Currency and Banking

et al. 2019

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One frequently raised concern about a central bank digital currency (CBDC) is that it is likely to compete with bank deposits as a means of payment and therefore increase private banks' funding costs and induce disintermediation. We develop a micro-founded general equilibrium model with money and banking to evaluate this concern both theoretically and quantitatively. We find that when banks have market powers in the deposit market, introducing a CBDC that competes with bank deposits as a means of payment can compel banks to raise the deposit rate and expand bank intermediation and output. The model calibrated to the U.S. economy suggests that a CBDC with a proper interest rate can raise bank lending by 3.55% and output by 0.50%. We also use the framework to evaluate other dimensions of the CBDC design, including acceptability, eligibility as reserves and the rule of supply, and assess the role of a CBDC as the economy becomes increasingly cashless.

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Central Bank Digital Currency and Banking

et al. 2019

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“…Andolfatto (2018) and Chiu et al (2019) develop models where CBDC raises welfare by reducing banks' deposit market power, while Brunnermeier and Niepelt (2019), Kim and Kwon (2019) and Miccoli (2019) model the relationship between banking panics and the availability of CBDC. 9 In Keister and Sanches (2019), CBDC contributes to efficiency in exchange at the expense of crowding out deposits.…”

Section: Introductionmentioning

confidence: 99%

Designing Central Bank Digital Currencies

Agur

Ratnovski

2019

IMF Working Papers

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We study the optimal design of a central bank digital currency (CBDC) in an environment where agents sort into cash, CBDC and bank deposits according to their preferences over anonymity and security; and where network effects make the convenience of payment instruments dependent on the number of their users. CBDC can be designed with attributes similar to cash or deposits, and can be interest-bearing: a CBDC that closely competes with deposits depresses bank credit and output, while a cash-like CBDC may lead to the disappearance of cash. Then, the optimal CBDC design trades off bank intermediation against the social value of maintaining diverse payment instruments. When network effects matter, an interest-bearing CBDC alleviates the central bank's tradeoff.

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“… See Bordo and Levin (2017) for a comprehensive discussion of design principles for digital cash. 14 SeeKeister and Sanchez (2018).…”

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Digital Cash: Principles & Practical Steps

Bordo¹

2019

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If the global economy encounters another severe adverse shock in coming years, will major central banks be able to provide sufficient monetary stimulus to preserve price stability and foster economic recovery? Our empirical analysis indicates that the Federal Reserve's QE3 program was not an effective form of monetary stimulus and that unconventional monetary policies undertaken in the Eurozone and in Japan have been similarly limited in impact. We then consider how digital cash could bolster the effectiveness of monetary policy, and we characterize some potential steps for implementing digital cash via public-private partnerships between the central bank and supervised financial institutions. Our analysis indicates that digital cash could significantly enhance the stability of the financial system.

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Should Central Banks Issue Digital Currency?

Cited by 72 publications

References 13 publications

Central Bank Digital Currency and Banking

Central Bank Digital Currency and Banking

Designing Central Bank Digital Currencies

Digital Cash: Principles & Practical Steps

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