The macroeconomics of central bank issued digital currencies
John Barrdear () and
Michael Kumhof ()
No 605, Bank of England working papers from Bank of England
We study the macroeconomic consequences of issuing central bank digital currency (CBDC) — a universally accessible and interest-bearing central bank liability, implemented via distributed ledgers, that competes with bank deposits as medium of exchange. In a DSGE model calibrated to match the pre-crisis United States, we find that CBDC issuance of 30% of GDP, against government bonds, could permanently raise GDP by as much as 3%, due to reductions in real interest rates, distortionary taxes, and monetary transaction costs. Countercyclical CBDC price or quantity rules, as a second monetary policy instrument, could substantially improve the central bank’s ability to stabilise the business cycle.
Keywords: Distributed ledgers; blockchain; banks; financial intermediation; bank lending; money creation; money demand; endogenous money; countercyclical policy (search for similar items in EconPapers)
JEL-codes: E41 E42 E44 E51 E52 E58 G21 (search for similar items in EconPapers)
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