Monetary Policy in the Open Economy With Digital Currencies

Pietro Cova, Alessandro Notarpietro, Patrizio Pagano and Massimiliano Pisani

International Finance, 2026, vol. 29, issue 1, 79-91

Abstract: This paper investigates the transmission of monetary policy within a two‐country New Keynesian model, accounting for both traditional cash and digital currencies, including a global stablecoin and a central bank digital currency, which are treated as imperfect substitutes. Our analysis reveals that if the global stablecoin assumes a significant role as a means of payment, the macroeconomic effects of a monetary policy shock may vary, potentially resulting in outcomes that can be either smaller or larger than those observed in an economy primarily reliant on cash. This result hinges on the response to the shock of the assets backing the supply of the stablecoin. The benchmark monetary transmission can be substantially restored if either the stablecoin is fully backed by cash or the central bank digital currency is a relevant means of payment.

Date: 2026
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https://doi.org/10.1111/infi.70010

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Working Paper: Monetary policy in the open economy with digital currencies (2022)
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