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Public and Private Money Creation for Distributed Ledgers: Stablecoins, Tokenized Deposits, or Central Bank Digital Currencies?

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  • Jonathan Chiu
  • Cyril Monnet

Abstract

This paper explores the implications of introducing digital public and private monies (e.g. tokenized central bank digital currency [CBDC] or tokenized deposits) for stablecoins and illicit crypto transactions. When they pay a high interest rate and guarantee a high degree of anonymity, these tokenized currencies crowd out stablecoins as payment methods in the crypto space. Conversely, with low anonymity and low interest rates, tokenized currencies become collateral, promoting the development of stablecoins. CBDCs dominate tokenized deposits because a central bank can better economize on scarce collateral assets and internalize the social costs of crypto activities. Prohibiting tokenized deposits may be necessary to implement the optimal CBDC design.

Suggested Citation

  • Jonathan Chiu & Cyril Monnet, 2024. "Public and Private Money Creation for Distributed Ledgers: Stablecoins, Tokenized Deposits, or Central Bank Digital Currencies?," Staff Working Papers 24-35, Bank of Canada.
    • Handle: RePEc:bca:bocawp:24-35
    DOI: 10.34989/swp-2024-35
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    References listed on IDEAS

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    1. Zijian Wang, 2023. "Money Laundering and the Privacy Design of Central Bank Digital Currency," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 604-632, December.
    2. Jonathan Chiu & Seyed Mohammadreza Davoodalhosseini & Janet Jiang & Yu Zhu, 2023. "Bank Market Power and Central Bank Digital Currency: Theory and Quantitative Assessment," Journal of Political Economy, University of Chicago Press, vol. 131(5), pages 1213-1248.
    3. Jonathan Chiu & Thorsten Koeppl & Hanna Yu & Shengxing Zhang, 2023. "Understanding DeFi Through the Lens of a Production-Network Model," Staff Working Papers 23-42, Bank of Canada.
    4. Ye Li & Simon Mayer & Simon Mayer, 2021. "Money Creation in Decentralized Finance: A Dynamic Model of Stablecoin and Crypto Shadow Banking," CESifo Working Paper Series 9260, CESifo.
    5. Keister, Todd & Monnet, Cyril, 2022. "Central bank digital currency: Stability and information," Journal of Economic Dynamics and Control, Elsevier, vol. 142(C).
    6. Jesus Fernandez-Villaverde & Daniel Sanches & Linda Schilling & Harald Uhlig, 2021. "Central Bank Digital Currency: Central Banking For All?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 41, pages 225-242, July.
    7. 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.
    8. Ahnert, Toni & Hoffmann, Peter & Monnet, Cyril, 2025. "Payments and privacy in the digital economy," Journal of Financial Economics, Elsevier, vol. 169(C).
    9. Toni Ahner & Katrin Assenmacher & Peter Hoffmann & Agnese Leonello & Cyril Monnet & Davide Porcellacchia, 2024. "The Economics of Central Bank Digital Currency," International Journal of Central Banking, International Journal of Central Banking, vol. 20(4), pages 221-274, October.
    10. Cyril Monnet & Hyun Song Shin & Jon Frost & Leonardo Gambacorta & Raphael Auer & Tara Rice, 2022. "Central Bank Digital Currencies: Motives, Economic Implications, and the Research Frontier," Annual Review of Economics, Annual Reviews, vol. 14(1), pages 697-721, August.
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    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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