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BEYOND BITCOIN AND CASH: DO WE LIKE A CENTRAL BANK DIGITAL CURRENCY? A FINANCIAL AND POLITICAL ECONOMICS APPROACH

Emanuele Borgonovo, Stefano Caselli, Alessandra Cillo and Donato Masciandaro ()

No 1765, BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy

Abstract: The aim of this paper is to offer a theoretical primer in order to analyse the demand of a central bank digital currency (CBDC). Using a financial portfolio approach and assuming that individual preferences and policy votes are consistent, we identify the drivers of the political consensus in favour or against such as new currency. Given three different properties of a currency – where the first two are the standard functions of medium of exchange and store of value and the third one is the less explored function of store of information – and three different existing moneys – paper currency, banking currency and cryptocurrency – if the individuals are rational but at the same time can be affected by behavioural biases – loss aversion - three different groups of individuals – respectively lovers, neutrals and haters – emerge respect to the CBDC option. Given the alternative opportunity costs of the different currencies, the CBDC issuing is more likely to occur the more the individuals likes to use a legal tender, and/or are indifferent respect to anonymity; at the same time, the probability of the CBDC introduction increases if a return can be paid on it, and/or its implementation can guarantee at least the counterparty anonymity.

Keywords: Central Bank Digital Currencies; Cash; Bitcoin; Cryptocurrencies (search for similar items in EconPapers)
JEL-codes: B22 D72 E41 E42 E52 E58 G38 G41 K42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-pay
Date: 2017
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