Central bank digital currency and cryptocurrency in emerging markets

Anh H. Le

MPRA Paper from University Library of Munich, Germany

Abstract: Blockchain technology has opened up the possibility of digital currency, smart contracts and much more applications including the launch of central bank digital currencies (CBDC). However, literature about the effect of CBDC with the presence of cryptocurrency for an emerging market economy seems to be left behind. In this paper, we introduce a New Keynesian - Dynamic Stochastic General Equilibrium (NK-DSGE) model to examine the implications of CBDC and cryptocurrency in an open economy for emerging markets. In our model, cryptocurrency is implemented as a form of deposit in banks where bankers can also receive deposits from abroad. Lastly, CBDC is introduced as a payment and saving instrument. We find that cryptocurrency has a crucial role in banking sectors and a significant effect on the dynamic of foreign debt which is deeply important for emerging markets. We also conduct optimal monetary policy under different scenarios. Hence, we uncover that a flexible rate in CBDC can affect the responses of the monetary rate and can reinforce the conventional monetary policy to achieve the central bank's targets.

Keywords: Central bank digital currency; Cryptocurrency; Open-economy; Financial frictions; Optimal monetary policy (search for similar items in EconPapers)
JEL-codes: E50 F30 F31 G15 G18 G23 (search for similar items in EconPapers)
Date: 2022-09-20
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-fdg, nep-mon, nep-opm and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:114734

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