A Simple Model of a Central Bank Digital Currency

Bineet Mishra and Eswar Prasad

No 31198, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a general equilibrium model that highlights the trade-offs between physical and digital forms of retail central bank money. The key differences between cash and central bank digital currency (CBDC) include transaction efficiency, possibilities for tax evasion, and, potentially, nominal rates of return. We establish conditions under which cash and CBDC can co-exist and show how government policies can influence relative holdings of cash, CBDC, and other assets. We illustrate how a CBDC can facilitate negative nominal interest rates and helicopter drops, and also how a CBDC can be structured to prevent capital flight from other assets.

JEL-codes: E4 E5 E61 (search for similar items in EconPapers)
Date: 2023-04
New Economics Papers: this item is included in nep-ban, nep-cba, nep-des, nep-dge, nep-fdg, nep-mon and nep-pay
Note: IFM ME
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Citations: View citations in EconPapers (4)

Published as Bineet Mishra & Eswar Prasad, 2024. "A simple model of a central bank digital currency," Journal of Financial Stability, .

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Journal Article: A simple model of a central bank digital currency (2024)
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