Should Central Banks Issue Digital Currency?

Todd Keister and Daniel Sanches

The Review of Economic Studies, 2023, vol. 90, issue 1, 404-431

Abstract: We study how introducing a central bank digital currency affects equilibrium allocations and welfare in an environment where both currency and bank deposits are used in exchange. We highlight an important policy tradeoff: while a digital currency tends to improve efficiency in exchange, it may also crowd out bank deposits, raise banks’ funding costs, and decrease investment. We derive conditions under which targeted digital currencies, which compete only with physical currency or only with bank deposits, raise welfare. If such targeted currencies are infeasible, we illustrate the policy tradeoffs that arise when issuing a single, universal digital currency.

Keywords: Digital currency; Public vs. private money; Liquidity premium; Monetary policy; Disintermediation; E42; E58; G28 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (33)

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Related works:
Working Paper: Should Central Banks Issue Digital Currency? (2021)
Working Paper: Should Central Banks Issue Digital Currency? (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:90:y:2023:i:1:p:404-431.

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