Designing Central Bank Digital Currencies
Anil Ari and
No 2019/252, IMF Working Papers from International Monetary Fund
We study the optimal design of a central bank digital currency (CBDC) in an environment where agents sort into cash, CBDC and bank deposits according to their preferences over anonymity and security; and where network effects make the convenience of payment instruments dependent on the number of their users. CBDC can be designed with attributes similar to cash or deposits, and can be interest-bearing: a CBDC that closely competes with deposits depresses bank credit and output, while a cash-like CBDC may lead to the disappearance of cash. Then, the optimal CBDC design trades off bank intermediation against the social value of maintaining diverse payment instruments. When network effects matter, an interest-bearing CBDC alleviates the central bank's tradeoff.
Keywords: WP; central bank; interest rate; market power; CBDC design; interest-bearing CBDC; cash equilibrium; CBDC rate; cash holder; CBDC interest rate; CBDC risk; Central Bank digital currencies; Currencies; Payment systems; Bank deposits; Deposit rates (search for similar items in EconPapers)
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Journal Article: Designing central bank digital currencies (2022)
Working Paper: Designing Central Bank Digital Currencies (2020)
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