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Designing central bank digital currencies

Itai Agur, Anil Ari and Dell’Ariccia, Giovanni

Journal of Monetary Economics, 2022, vol. 125, issue C, 62-79

Abstract: The optimal design of a central bank digital currency (CBDC) is analyzed in an environment where agents sort into cash, CBDC, and bank deposits according to their preferences over anonymity and security; and where network effects make the convenience of a payment instrument depend on the number of its users. A CBDC can be designed with attributes similar to cash or deposits, and can be interest bearing: a CBDC that closely competes with deposits depresses bank credit and output, while a cash-like CBDC may lead to the disappearance of cash. Then, the optimal CBDC design trades off bank intermediation against the social value of maintaining diverse payment instruments. When network effects matter, an interest-bearing CBDC alleviates the central bank’s tradeoff.

Keywords: CBDC; Fintech; Digital currency; Financial intermediation; Network effects (search for similar items in EconPapers)
JEL-codes: E41 E58 G21 (search for similar items in EconPapers)
Date: 2022
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Working Paper: Designing Central Bank Digital Currencies (2020) Downloads
Working Paper: Designing Central Bank Digital Currencies (2019) Downloads
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DOI: 10.1016/j.jmoneco.2021.05.002

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