Public and Private Money Creation for Distributed Ledgers: Stablecoins, Tokenized Deposits, or Central Bank Digital Currencies?

Jonathan Chiu and Cyril Monnet

Staff Working Papers from Bank of Canada

Abstract: This paper explores the implications of introducing digital public and private monies (e.g. tokenized central bank digital currency [CBDC] or tokenized deposits) for stablecoins and illicit crypto transactions. When they pay a high interest rate and guarantee a high degree of anonymity, these tokenized currencies crowd out stablecoins as payment methods in the crypto space. Conversely, with low anonymity and low interest rates, tokenized currencies become collateral, promoting the development of stablecoins. CBDCs dominate tokenized deposits because a central bank can better economize on scarce collateral assets and internalize the social costs of crypto activities. Prohibiting tokenized deposits may be necessary to implement the optimal CBDC design.

Keywords: Digital currencies and fintech; Financial stability; Monetary policy (search for similar items in EconPapers)
JEL-codes: E50 E58 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2024-10
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mon and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:24-35

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