Should Central Banks Issue Digital Currency?

By Todd Keister, Daniel R. Sanches. Working paper (Federal Reserve Bank of Philadelphia), 2019

180 citations recorded by the source corpus.

We study how the introduction of a central bank-issued digital currency affects interest rates, the level of economic activity, and welfare in an environment where both central bank money and private bank deposits are used in exchange. Banks in our model are financially constrained, and the liquidity premium on bank deposits affects the level of aggregate investment. We study the optimal design of a digital currency in this setting, including whether it should pay interest and how widely it should circulate. We highlight an important policy tradeoff: while a digital currency tends to promote efficiency in exchange, it can also crowd out bank deposits, raise banksfunding costs, and decrease investment. Despite these effects, introducing a central bank digital currency often raises welfare.

Subfields: Economics and Econometrics, Finance, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/6eb32a780effe26e3386c1362afbd9737cca91a5

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

1. Giovanni Dell'Ariccia
2. M. Gronwald
3. Frank Smets
4. Luc Laeven

In Finance

1. Giovanni Dell'Ariccia
2. M. Gronwald
3. Luc Laeven
4. Thorsten Beck
5. Frank Smets
6. Stijn Claessens

In Strategy and Management

1. M. Gronwald

Citations in the corpus

• Central Bank Digital Currency: When Price and Bank Stability Collide (2020, unknown): “Second, we have many points of contact with Keister and Sanches (2019), who explore how the presence of a CBDC affects the liquidity premium on bank deposits and, through it, investment.”
• Designing Central Bank Digital Currencies (2019, background): “…banks’ deposit market power, while Brunnermeier and Niepelt (2019), Kim and Kwon (2019) and Miccoli (2019) model the relationship between banking panics and the availability of CBDC.9 In Keister and Sanches (2019), CBDC contributes to effi ciency in exchange at the expense of crowding out deposits.”
• Is Bitcoin a Commodity? On price jumps, demand shocks, and certainty of supply (2019, background): “More recent contributions such as Cheah et al. (2018) and Khuntia and Pattanayak (2018) deal with long memory and the Adaptive Market Hypothesis (AMH), respectively.”
• Rise of the Central Bank Digital Currencies: Drivers, Approaches and Technologies (2020, unknown): “One is how central banks should create money and whether CBDCs are desirable in that context (Keister and Sanches (2019), Jackson and Pennacchi (2019), Kim and Kang (2019), Armelius et al (2020a)).”