A Macroeconomic Model of Central Bank Digital Currency

Pascal Paul, Mauricio Ulate and Jing Cynthia Wu

No 2024-11, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: We develop a quantitative New Keynesian DSGE model with monopolistic banks to study the macroeconomic effects of introducing a central bank digital currency (CBDC). Households benefit from an expansion of liquidity services and higher deposit rates as bank deposit market power is curtailed, while bank profitability and lending decline. We assess this trade-off for a wide range of economies that differ in their level of interest rates. We find substantial welfare gains from introducing a CBDC with an optimal rate that can be approximated by a simple rule of thumb: the maximum between 0% and the policy rate minus 1%.

Keywords: central banks; digital currencies; banks; DSGE models; monetary policy; central bank (search for similar items in EconPapers)
JEL-codes: E3 E4 E5 G21 G51 (search for similar items in EconPapers)
Pages: 100
Date: 2025-06-25
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-fdg, nep-mon and nep-pay
Note: Original publication date: 4/8/2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: A Macroeconomic Model of Central Bank Digital Currency (2025)
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DOI: 10.24148/wp2024-11

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