Digital Money as a Unit of Account and Monetary Policy in Open Economies
No 20-E-15, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan
Further progress in digital money, electronically stored monetary value, may enable pricing in units of any currency in any country. This paper studies monetary policy in such a world, using a two- country open economy model with nominal rigidities. The findings are three-fold. First, domestic monetary policy becomes less effective as digital dollarization - pricing using digital money, denominated in and pegged to a foreign currency - deepens. Second, digital dollarization is more likely to occur in a smaller country that is more open to trade and has a greater tradable sector and stronger input-output linkages. Third, monetary policy can facilitate or discourage digital dollarization depending on its stance on the stabilization of macroeconomic variables.
Keywords: Digital money; monetary policy; dollarization (search for similar items in EconPapers)
JEL-codes: E52 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon, nep-opm and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:ime:imedps:20-e-15
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