Monetary Policy with Reserves and CBDC: Optimality, Equivalence, and Politics

Dirk Niepelt

No 15457, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We analyze policy in a two-tiered monetary system. Noncompetitive banks issue deposits while the central bank issues reserves and a retail CBDC. Monies differ with respect to operating costs and liquidity. We map the framework into a baseline business cycle model with "pseudo wedges" and derive optimal policy rules: Spreads satisfy modified Friedman rules and deposits must be taxed or subsidized. We generalize the Brunnermeier and Niepelt (2019) result on the macro irrelevance of CBDC but show that a deposit based payment system requires higher taxes. The model implies annual implicit subsidies to U.S. banks of up to 0.8 percent of GDP during the period 1999-2017.

Keywords: Reserves; Deposits; Central bank digital currency; Monetary policy; Friedman rule; Equivalence; Ramsey policy; Bank profits; Money creation (search for similar items in EconPapers)
JEL-codes: E42 E43 E51 E52 G21 (search for similar items in EconPapers)
Date: 2020-11
New Economics Papers: this item is included in nep-dge, nep-mac, nep-mon and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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Working Paper: Monetary Policy with Reserves and CBDC: Optimality, Equivalence, and Politics (2020)
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