The macroeconomics of central bank digital currencies

By John Barrdear, Michael Kumhof. 2021

190 citations recorded by the source corpus.

Abstract We study the macroeconomic consequences of issuing central bank digital currency (CBDC) - a universally-accessible and interest-bearing central bank liability that competes with bank deposits as medium of exchange. In a DSGE model calibrated to match the pre-2008 US, we find that CBDC issuance of 30% of GDP, against government bonds, could permanently raise GDP by 3%, due to lower real interest rates, distortionary taxes, and monetary transaction costs. Countercyclical CBDC policy rules, as a second monetary policy tool, could substantially improve the central bank’s ability to stabilise the business cycle. Risks to banks can be minimized through appropriate issuance arrangements.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/019fac25b962f021860c476a452e47712d3b3cb5

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In Economics and Econometrics

1. Daniel R. Sanches
2. Todd Keister

In Finance

1. Daniel R. Sanches
2. Todd Keister

Citations in the corpus

• Should Central Banks Issue Digital Currency? (2019, background): “The earliest paper in this branch is Barrdear and Kumhof (2021), which introduces a CBDC into a quantitative DSGE model to assess its impact on GDP and to evaluate different monetary policy rules.”