The macroeconomics of central bank digital currencies

John Barrdear and Michael Kumhof

Journal of Economic Dynamics and Control, 2022, vol. 142, issue C

Abstract: 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.

Keywords: Central bank digital currency; Money creation; Money demand; Endogenous money; Banks; Financial intermediation; Bank lending; Distributed ledgers; Blockchain; Countercyclical policy; Seigniorage (search for similar items in EconPapers)
JEL-codes: E41 E42 E44 E51 E52 E58 G21 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (41)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:142:y:2022:i:c:s016518892100083x

DOI: 10.1016/j.jedc.2021.104148

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