Informal economy and central bank digital currency

Eun Young Oh and Shuonan Zhang
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Eun Young Oh: University of Portsmouth

No 2020-11, Working Papers in Economics & Finance from University of Portsmouth, Portsmouth Business School, Economics and Finance Subject Group

Abstract: This paper explores the association between the informal economy and the adoption of central bank digital currency (CBDC) by end users, namely households and businesses. Our findings suggest that CBDC may not be widely accepted by end users in the presence of a sizeable informal economy in which cash is the primary method of payment. CBDC can decrease informality, but this effect becomes weaker in countries with larger informal economies. Tax reduction and CBDC interest rates can be useful tools to promote the adoption and effectiveness of CBDC, leading to a reallocation effect between formal and informal sectors.

Keywords: Central Bank Digital Currency; Informal Economy; DSGE (search for similar items in EconPapers)
JEL-codes: E26 E40 E42 E58 (search for similar items in EconPapers)
Pages: 38
Date: 2020-07-21, Revised 2022-06-23
New Economics Papers: this item is included in nep-cba, nep-iue, nep-mac, nep-mon, nep-ore and nep-pay
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Citations: View citations in EconPapers (12)

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Journal Article: Informal economy and central bank digital currency (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:pbs:ecofin:2020-11

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