The role of central bank digital currency in an increasingly digital economy

Benjamin Hemingway

Journal of Economic Dynamics and Control, 2025, vol. 179, issue C

Abstract: The introduction of an unremunerated retail central bank digital currency (CBDC) is currently under consideration by several central banks. Motivated by the decline in transactional cash usage and the increase in online sales in the UK, this paper provides a theoretical framework to study the underlying drivers of these trends and the welfare implications of introducing an unremunerated retail CBDC. I develop a cash credit model with physical and digital retail sectors, endogenous entry of firms and directed consumer search. Calibrating to UK data between 2010 and 2022 the model suggests that there are positive welfare gains from introducing an unremunerated retail CBDC, but these have likely declined over time.

Keywords: CBDC; Credit; Digital currency; Money (search for similar items in EconPapers)
JEL-codes: E41 E42 E58 (search for similar items in EconPapers)
Date: 2025
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Working Paper: The role of central bank digital currency in an increasingly digital economy (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:179:y:2025:i:c:s0165188925001277

DOI: 10.1016/j.jedc.2025.105161

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