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Beyond Bitcoin And Cash: Do We Like A Central Bank Digital Currency? A Financial And Political Economics Approach

Author

Listed:
  • Emanuele Borgonovo
  • Stefano Caselli
  • Alessandra Cillo
  • Donato Masciandaro

Abstract

The aim of this paper is to offer a theoretical primer in order to analyse the demand of a central bank digital currency (CBDC). Using a financial portfolio approach and assuming that individual preferences and policy votes are consistent, we identify the drivers of the political consensus in favour or against such as new currency. Given three different properties of a currency – where the first two are the standard functions of medium of exchange and store of value and the third one is the less explored function of store of information – and three different existing moneys – paper currency, banking currency and cryptocurrency – if the individuals are rational but at the same time can be affected by behavioural biases – loss aversion - three different groups of individuals – respectively lovers, neutrals and haters – emerge respect to the CBDC option. Given the alternative opportunity costs of the different currencies, the CBDC issuing is more likely to occur the more the individuals likes to use a legal tender, and/or are indifferent respect to anonymity; at the same time, the probability of the CBDC introduction increases if a return can be paid on it, and/or its implementation can guarantee at least the counterparty anonymity.

Suggested Citation

  • Emanuele Borgonovo & Stefano Caselli & Alessandra Cillo & Donato Masciandaro, 2017. "Beyond Bitcoin And Cash: Do We Like A Central Bank Digital Currency? A Financial And Political Economics Approach," BAFFI CAREFIN Working Papers 1765, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
  • Handle: RePEc:baf:cbafwp:cbafwp1765
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    File URL: ftp://ftp.unibocconi.it/pub/RePEc/baf/papers/cbafwp1765.pdf
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    References listed on IDEAS

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    1. Alberto Alesina & Francesco Passarelli, 2015. "Loss Aversion in Politics," NBER Working Papers 21077, National Bureau of Economic Research, Inc.
    2. repec:aea:jecper:v:31:y:2017:i:3:p:29-46 is not listed on IDEAS
    3. Michel Rauchs & Garrick Hileman, 2010. "Global Blockchain Benchmarking Study," Cambridge Centre for Alternative Finance Reports, Cambridge Centre for Alternative Finance, Cambridge Judge Business School, University of Cambridge, number 201009-gbbs.
    4. repec:spr:intere:v:52:y:2017:i:6:d:10.1007_s10272-017-0706-3 is not listed on IDEAS
    5. Guglielmo Maria Caporale & Alex Plastun, 2017. "The Day of the Week Effect in the Crypto Currency Market," CESifo Working Paper Series 6716, CESifo Group Munich.
    6. Joshua R. Hendrickson & Thomas L. Hogan & William J. Luther, 2016. "The Political Economy Of Bitcoin," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 925-939, April.
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    8. Ben Fung & Hanna Halaburda, 2016. "Central Bank Digital Currencies: A Framework for Assessing Why and How," Discussion Papers 16-22, Bank of Canada.
    9. Favaretto, Federico & Masciandaro, Donato, 2016. "Doves, hawks and pigeons: Behavioral monetary policy and interest rate inertia," Journal of Financial Stability, Elsevier, vol. 27(C), pages 50-58.
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    11. Michael D. Bordo & Andrew T. Levin, 2017. "Central Bank Digital Currency and the Future of Monetary Policy," NBER Working Papers 23711, National Bureau of Economic Research, Inc.
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    13. Guerino Ardizzi & Carmelo Petraglia & Massimiliano Piacenza & Friedrich Schneider & Gilberto Turati, 2014. "Money Laundering as a Crime in the Financial Sector: A New Approach to Quantitative Assessment, with an Application to Italy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(8), pages 1555-1590, December.
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    Cited by:

    1. repec:eee:moneco:v:106:y:2019:i:c:p:16-26 is not listed on IDEAS
    2. Schilling, Linda & Uhlig, Harald, 2019. "Some simple bitcoin economics," Journal of Monetary Economics, Elsevier, vol. 106(C), pages 16-26.

    More about this item

    Keywords

    Central Bank Digital Currencies; Cash; Bitcoin; Cryptocurrencies;

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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