Stablecoins and Central Bank Digital Currencies: Who Supplies Liquidity?

Pierpaolo Benigno

No 21033, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We develop a tractable monetary framework in which central bank liabilities and privately issued stablecoins provide liquidity services. We study the interaction between managing the unit of account and managing the means of payment in a currency system. A wedge between market rates and administered remuneration on reserves and tokens makes the supply of public liquidity an independent policy instrument. We characterize when a fully remunerated central bank digital currency or frictionless private issuance can achieve liquidity satiation without losing price-level control, and why balance-sheet risk, seigniorage, and intermediation frictions prevent these knife-edge outcomes. An intermediate regime with a small central bank balance sheet and an elastic backstop stabilizes liquidity premia and inflation.

Date: 2026-01
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