Analysis of the Impact of Central bank Digital Currency on the Demand for Transactional Currency

Ruimin Song, Tiantian Zhao and Chunhui Zhou

Papers from arXiv.org

Abstract: This paper takes the development of Central bank digital currencies as a perspective, introduces it into the Baumol-Tobin money demand theoretical framework, establishes the transactional money demand model under Central bank Digital Currency, and qualitatively analyzes the influence mechanism of Central bank digital currencies on transactional money demand; meanwhile, quarterly data from 2010-2022 are selected to test the relationship between Central bank digital currencies and transactional money demand through the ARDL model. The long-run equilibrium and short-run dynamics between the demand for Central bank digital currencies and transactional currency are examined by ARDL model. The empirical results show that the issuance and circulation of Central bank digital currencies will reduce the demand for transactional money. Based on the theoretical analysis and empirical test, this paper proposes that China should explore a more effective Currency policy in the context of Central bank digital currencies while promoting the development of Central bank digital currencies in a prudent manner in the future.

Date: 2024-01
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mon and nep-pay
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