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Designing the Future of Money: The Case for Multiple CBDCs

Author

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  • Julian A. Parra-Polania
  • Constanza Martínez-Ventura

Abstract

We examine the optimal design of central bank digital currencies (CBDCs) by focusing on two key features: the anonymity-security trade-off and the remuneration (i.e., interest rate). Building on the extended model by Agur et al. (2022), which accounts for potential negative externalities associated with the anonymity of payment methods, we incorporate the possibility of multiple CBDCs into the framework. Our findings reveal that with optimally designed CBDCs and when anonymity costs are significant, a cashless economy is the preferred choice for the central bank. Furthermore, irrespective of anonymity costs, an economy with cash and one or more CBDCs is welfare dominated by a cashless economy with one additional CBDC. These results underscore the exibility and welfare-enhancing potential of CBDCs compared to cash in modern payment systems. **** RESUMEN: Analizamos el diseño óptimo de las monedas digitales de los bancos centrales (CBDC), centrándonos en dos características clave: la disyuntiva entre anonimato versus seguridad y la remuneración (tasa de interés). Con base en el modelo extendido de Agur et al. (2022), que considera las posibles externalidades negativas asociadas con el nivel de anonimato de los métodos de pago, incorporamos la posibilidad de múltiples CBDCs. Nuestros hallazgos revelan que con CBDCs óptimamente diseñadas, y cuando los costos de la anonimato son relativamente altos, una economía sin efectivo es la opción preferida del banco central. Adicionalmente, independientemente de los costos de la anonimato, una economía con efectivo y una o más CBDCs es menos preferida, en términos de bienestar social, que una economía sin efectivo y con una CBDC adicional. Estos resultados resaltan la flexibilidad y el potencial de mejora del bienestar de las CBDCs en comparación con el efectivo en los sistemas de pago modernos.

Suggested Citation

  • Julian A. Parra-Polania & Constanza Martínez-Ventura, 2025. "Designing the Future of Money: The Case for Multiple CBDCs," Borradores de Economia 1311, Banco de la Republica de Colombia.
  • Handle: RePEc:bdr:borrec:1311
    DOI: 10.32468/be.1311
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    More about this item

    Keywords

    CBDC; optimal design; anonymity; security; digital currency; cashless economy; CBDC; diseño óptimo; anonimato; seguridad; monedas digitales; economía sin efectivo;
    All these keywords.

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • 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
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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