Digital Money as a Unit of Account and Monetary Policy in Open Economies

Daisuke Ikeda

No 20-E-15, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: Further progress in digital money, electronically stored monetary value, may enable pricing in units of any currency in any country. This paper studies monetary policy in such a world, using a two- country open economy model with nominal rigidities. The findings are three-fold. First, domestic monetary policy becomes less effective as digital dollarization - pricing using digital money, denominated in and pegged to a foreign currency - deepens. Second, digital dollarization is more likely to occur in a smaller country that is more open to trade and has a greater tradable sector and stronger input-output linkages. Third, monetary policy can facilitate or discourage digital dollarization depending on its stance on the stabilization of macroeconomic variables.

Keywords: Digital money; monetary policy; dollarization (search for similar items in EconPapers)
JEL-codes: E52 F41 (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon, nep-opm and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:ime:imedps:20-e-15

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