IDEAS home Printed from https://ideas.repec.org/a/rbs/ijfbss/v11y2022i2id1789.html

A Two-Period Decision Model for Central Bank Digital Currencies and Households

Author

Listed:
  • Guizhou Wang
  • Kjell Hausken

Abstract

Central bank digital currencies (CBDCs) give rise to many possibilities including those of negative interest rates. A two-period decision model is presented between one central bank and one representative household. The central bank applies the Taylor (1993) rule to choose its interest rate. The household allocates its resources strategically to production, consumption, CBDC holding, and non-CBDC holding. The results are determined analytically and illustrated numerically by varying 19 parameter values. Interesting novelties of the article are that the central bank may choose negative CBDC interest rates when the household holds far more CBDC than non-CBDC, for low inflation rates, low real interest rates, low household’s potential production, low weight assigned to inflation in the Taylor (1993) rule, high target inflation rate, and high household’s production parameter. That usually causes the household to decrease its CBDC holding and increase its non-CBDC holding, production and consumption. The central bank may increase its CBDC interest rate to compete with an increasing non-CBDC interest rate if the household’s transaction efficiencies for CBDC and non-CBDC increase, or the household’s transaction efficiency for consumption decreases. Shocks to production, inflation and interest rates are analyzed.

Suggested Citation

  • Guizhou Wang & Kjell Hausken, 2022. "A Two-Period Decision Model for Central Bank Digital Currencies and Households," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 11(2), pages 49-68, April.
    • Handle: RePEc:rbs:ijfbss:v:11:y:2022:i:2:id:1789
    DOI: 10.20525/ijfbs.v11i2.1789
    as

    Download full text from publisher

    File URL: https://ssbfnet.com/ojs/index.php/ijfbs/article/view/1789
    File Function: Abstract page
    Download Restriction: no
    File URL: https://ssbfnet.com/ojs/index.php/ijfbs/article/download/1789/1271
    File Function: Full text
    Download Restriction: no
    File URL: https://libkey.io/10.20525/ijfbs.v11i2.1789?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Jia, Pengfei, 2020. "Negative Interest Rates on Central Bank Digital Currency," MPRA Paper 103828, University Library of Munich, Germany.
    2. Emanuele Urbinati & Alessia Belsito & Daniele Cani & Angela Caporrini & Marco Capotosto & Simone Folino & Giuseppe Galano & Giancarlo Goretti & Gabriele Marcelli & Pietro Tiberi & Alessia Vita, 2021. "A digital euro: a contribution to the discussion on technical design choices," Mercati, infrastrutture, sistemi di pagamento (Markets, Infrastructures, Payment Systems) 10, Bank of Italy, Directorate General for Markets and Payment System.
    3. David Kuo Chuen Lee & Li Yan & Yu Wang, 2021. "A global perspective on central bank digital currency," China Economic Journal, Taylor & Francis Journals, vol. 14(1), pages 52-66, January.
    4. Welburn, Jonathan W. & Hausken, Kjell, 2015. "A game theoretic model of economic crises," Applied Mathematics and Computation, Elsevier, vol. 266(C), pages 738-762.
    5. Beniak, Patrycja, 2019. "Central bank digital currency and monetary policy: a literature review," MPRA Paper 96663, University Library of Munich, Germany.
    6. Katrin Assenmacher & Signe Krogstrup, 2021. "Monetary Policy with Negative Interest Rates: De-linking Cash from Digital Money," International Journal of Central Banking, International Journal of Central Banking, vol. 17(1), pages 67-106, March.
    7. Welburn, Jonathan William & Hausken, Kjell, 2015. "A Game-Theoretic Model with Empirics of Economic Crises," UiS Working Papers in Economics and Finance 2015/7, University of Stavanger.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Guizhou Wang & Kjell Hausken, 2022. "Comparative Analysis of Households and Digital Currencies for the US, China and Russia," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 11(2), pages 69-86, April.
    2. Guizhou Wang & Kjell Hausken, 2021. "Governmental Taxation of Households Choosing between a National Currency and a Cryptocurrency," Games, MDPI, vol. 12(2), pages 1-24, April.
    3. Wu, Binghui & Qi, Yaxin, 2026. "Central bank digital currency, banking stability, and the macroeconomy: A dynamic stochastic general equilibrium analysis," Economic Analysis and Policy, Elsevier, vol. 91(C), pages 444-470.
    4. Frédéric Tronnier & David Harborth & Patrick Biker, 2023. "Applying the extended attitude formation theory to central bank digital currencies," Electronic Markets, Springer;IIM University of St. Gallen, vol. 33(1), pages 1-21, December.
    5. Widodo, Erwin & Rochmadhan, Oryza Akbar & Lukmandono, & Januardi,, 2022. "Modeling Bayesian inspection game for non-performing loan problems," Operations Research Perspectives, Elsevier, vol. 9(C).
    6. Jonathan William Welburn & Kjell Hausken, 2017. "Game Theoretic Modeling of Economic Systems and the European Debt Crisis," Computational Economics, Springer;Society for Computational Economics, vol. 49(2), pages 177-226, February.
    7. Bita Shahbazi & Vahid Nikpey Pesyan & Zahra Salimi, 2025. "Interactive behaviour between currency speculators, monetary and fiscal actors to minimise social loss: A game theoretic analysis," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 70(245), pages 133-169, April – J.
    8. Peterson K. Ozili, 2023. "Redesigning the eNaira Central Bank Digital Currency (CBDC) for Payments and Macroeconomic Effectiveness," Contemporary Studies in Economic and Financial Analysis, in: Smart Analytics, Artificial Intelligence and Sustainable Performance Management in a Global Digitalised Economy, volume 110, pages 189-197, Emerald Group Publishing Limited.
    9. Josef Schroth, 2021. "Optimal Monetary and Macroprudential Policies," Staff Working Papers 21-21, Bank of Canada.
    10. Lim, King Yoong & Liu, Chunping & Zhang, Shuonan, 2024. "Optimal central banking policies: Envisioning the post-digital yuan economy with loan prime rate-setting," Emerging Markets Review, Elsevier, vol. 59(C).
    11. Hoang, Yen Hai & Ngo, Vu Minh & Bich Vu, Ngoc, 2023. "Central bank digital currency: A systematic literature review using text mining approach," Research in International Business and Finance, Elsevier, vol. 64(C).
    12. Ozili, Peterson K, 2024. "Artificial intelligence and central bank digital currency," MPRA Paper 121567, University Library of Munich, Germany.
    13. Ahmet Faruk Aysan & Nawaz Farrukh, 2021. "China's Transition to a Digital Currency: Does It Threaten Dollarization?," Working Papers hal-03364939, HAL.
    14. Becker, Hendrik, 2026. "CBDC demand simulation across high and low inflation regimes," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 106(C).
    15. Rakesh Sharma & Neelika Arora & Jitendra Yadav & Vikas Chauhan, 2026. "Understanding Generation Z’s adoption of Central Bank Digital Currency (CBDC): A dual-method approach using PLS-SEM, and fsQCA," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 31(3), pages 1-23, September.
    16. Agur, Itai & Ari, Anil & Dell’Ariccia, Giovanni, 2022. "Designing central bank digital currencies," Journal of Monetary Economics, Elsevier, vol. 125(C), pages 62-79.
    17. repec:bdi:wptemi:misp_025_22 is not listed on IDEAS
    18. Liu, Xin & Wu, Jiaqi & Zhang, Chenghu, 2025. "Antecedents of consumers' acceptance of central bank digital currency: The role of technology perceptions, social influence and personal traits," Technological Forecasting and Social Change, Elsevier, vol. 217(C).
    19. António Portugal Duarte & Fátima Sol Murta & Nuno Baetas da Silva & Beatriz Rodrigues Vieira, 2023. "Flip the Coin: Heads, Tails or Cryptocurrencies?," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 70(SI), pages 1-18, February.
    20. Hull, Isaiah & Sattath, Or, 2021. "Revisiting the Properties of Money," Working Paper Series 406, Sveriges Riksbank (Central Bank of Sweden).
    21. Alora, Aswin & Sahoo, Poonam & Sasidharan, Aghila, 2024. "Central bank digital currency adoption challenges- The case of an emerging nation," Finance Research Letters, Elsevier, vol. 59(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rbs:ijfbss:v:11:y:2022:i:2:id:1789. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Hasan Dincer (email available below). General contact details of provider: https://edirc.repec.org/data/ssbffea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.