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Central Bank Digital Currency: Motivations and Implications

Author

Listed:
  • Walter Engert
  • Ben Fung

Abstract

The emergence of digital currencies such as Bitcoin and the underlying blockchain and distribution ledger technology have attracted significant attention. These developments have raised the possibility of considerable impacts on the financial system and perhaps the wider economy. This paper addresses the question of whether a central bank should issue digital currency that could be used by the general public. It begins by discussing the possible motivations for a central bank to issue a digital currency. The paper then sets out a benchmark central bank digital currency (CBDC) with features that are similar to cash. The implications of such a digital currency are explored, focusing on central bank seigniorage, monetary policy, the banking system and financial stability, and payments. Finally, a CBDC that differs from the benchmark digital currency in a significant way is considered.

Suggested Citation

  • Walter Engert & Ben Fung, 2017. "Central Bank Digital Currency: Motivations and Implications," Discussion Papers 17-16, Bank of Canada.
  • Handle: RePEc:bca:bocadp:17-16
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    References listed on IDEAS

    as
    1. Ben Fung & Kim P. Huynh & Gerald Stuber, 2015. "The Use of Cash in Canada," Bank of Canada Review, Bank of Canada, vol. 2015(Spring), pages 45-56.
    2. Christopher S. Henry & Kim P. Huynh & Gradon Nicholls, 2017. "Bitcoin Awareness and Usage in Canada," Staff Working Papers 17-56, Bank of Canada.
    3. Barrdear, John & Kumhof, Michael, 2016. "The macroeconomics of central bank issued digital currencies," Bank of England working papers 605, Bank of England.
    4. repec:bla:jorssa:v:180:y:2017:i:2:p:503-530 is not listed on IDEAS
    5. Carlos Arango & Kim Huynh & Ben Fung & Gerald Stuber, 2012. "The Changing Landscape for Retail Payments in Canada and the Implications for the Demand for Cash," Bank of Canada Review, Bank of Canada, vol. 2012(Autumn), pages 31-40.
    6. Jonathan Witmer & Jing Yang, 2016. "Estimating Canada’s Effective Lower Bound," Bank of Canada Review, Bank of Canada, vol. 2016(Spring), pages 3-14.
    7. Kenneth S. Rogoff, 2016. "The Curse of Cash," Economics Books, Princeton University Press, edition 1, number 10798.
    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. Heng Chen & Marie-Hélène Felt & Kim Huynh, 2014. "Retail Payment Innovations and Cash Usage: Accounting for Attrition Using Refreshment Samples," Staff Working Papers 14-27, Bank of Canada.
    10. McAndrews, James J., 2015. "Negative nominal central bank policy rates: where is the lower bound?," Speech 168, Federal Reserve Bank of New York.
    11. Ruchir Agarwal & Miles Kimball, 2015. "Breaking Through the Zero Lower Bound," IMF Working Papers 15/224, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Bank notes; Digital Currencies; Financial services; Payment clearing and settlement systems;

    JEL classification:

    • E - Macroeconomics and Monetary Economics
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • 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
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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