Proposing an interval design feature to Central Bank Digital Currencies

Fidelio Tata

Research in International Business and Finance, 2023, vol. 64, issue C

Abstract: We are witnessing the creation of a new class of financial market products in the form of Central Bank Digital Currencies. While those instruments are still at an embryonic stage and their final form and shape is still unknown, it is already obvious that they are extremely flexible instruments due to their potential digital features. This paper adds to the extensive and rapidly growing literature by proposing a new type of Central Bank Digital Currency with an embedded time-limitation design feature based on a validity interval within which time-period the digital currency is an effective claim against the central bank. We call this interval Central Bank Digital Currency. Focusing on four use cases, we analyze the merits of the proposed interval design feature. We find that there are several potential applications in the context of liquidity management, lending, monetary policy of central banks and derivative transactions. It can be argued that interval CBDC have several potential advantages, including the reduction of counterparty credit risk, enabling remuneration, and enlarging the monetary and fiscal toolkit.

Keywords: Central Bank Digital Currencies; Digital innovation; Cryptocurrencies (search for similar items in EconPapers)
JEL-codes: E42 E51 E52 E58 G1 G2 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:64:y:2023:i:c:s0275531923000247

DOI: 10.1016/j.ribaf.2023.101898

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