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Central Bank Digital Currency: Welfare and Policy Implications

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  • Stephen Williamson

Abstract

A model of banking and means of payment is constructed to analyze the effects of the introduction of central bank digital currency (CBDC). That CBDC is interest bearing is not an advantage, as replacement of physical currency with CBDC does not expand the attainable set of equilibrium allocations. CBDC can increase welfare by competing with private means of payment and shifting safe assets from the private banking sector to what is effectively a narrow banking facility. This uses the aggregate stock of safe collateral more efficiently, given incentive problems in private banking.

Suggested Citation

  • Stephen Williamson, 2022. "Central Bank Digital Currency: Welfare and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 130(11), pages 2829-2861.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/720457
    DOI: 10.1086/720457
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    1. Kenneth S. Rogoff, 2016. "The Curse of Cash," Economics Books, Princeton University Press, edition 1, number 10798.
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    7. Todd Keister & Daniel Sanches, 2023. "Should Central Banks Issue Digital Currency?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(1), pages 404-431.
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