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Monetary Policy and Digital Currencies: Much Ado about Nothing?

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  • C. Pfister

Abstract

In spite of a still very low volume at the global level, in comparison with the main reserve currencies, digital currencies attract a lot of attention. The paper reminds that it is above all the exchange mechanism incorporated in digital currencies (the distributed ledger technology) which should contribute to their success. It is shown that a widespread use of these currencies is likely to materialize only under conditions that would essentially leave unchanged the capacity of the central bank to pursue the same inflation target using the same instruments as today, by setting an interest rate level. However, some adjustments may have to be made to the definition of monetary aggregates and possibly also to the base and/or the ratios of reserve requirements. Even in the most extreme and unlikely scenario, where the central bank would issue CBDC the public would have access to and massively adopt, banks’ role in distributing credit would likely not be seriously impaired. Banks might rather have less direct information on their clients. They would possibly also become more dependent on central bank refinancing, which would call for a clear and pre-announced lending of last resort policy in order to limit moral hazard considerations.

Suggested Citation

  • C. Pfister, 2017. "Monetary Policy and Digital Currencies: Much Ado about Nothing?," Working papers 642, Banque de France.
  • Handle: RePEc:bfr:banfra:642
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    File URL: https://publications.banque-france.fr/sites/default/files/medias/documents/dt-642.pdf
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    References listed on IDEAS

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    1. Michael Woodford, 2001. "Monetary policy in the information economy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 297-370.
    2. 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.
    3. Christian Pfister & Françoise Drumetz & Jean-Guillaume Sahuc, 2015. "Politique Monétaire," Post-Print hal-01612726, HAL.
    4. Gifford, K. & Cheng, J., 2016. "Implementation of real-time settlement for banks using decentralised ledger technology: policy and legal implications," Financial Stability Review, Banque de France, issue 20, pages 143-151, April.
    5. Barrdear, John & Kumhof, Michael, 2016. "The macroeconomics of central bank issued digital currencies," Bank of England working papers 605, Bank of England.
    6. Dong He & Karl F Habermeier & Ross B Leckow & Vikram Haksar & Yasmin Almeida & Mikari Kashima & Nadim Kyriakos-Saad & Hiroko Oura & Tahsin Saadi Sedik & Natalia Stetsenko & Concha Verdugo Yepes, 2016. "Virtual Currencies and Beyond; Initial Considerations," IMF Staff Discussion Notes 16/3, International Monetary Fund.
    7. Ronnie Phillips, 1992. "The 'Chicago Plan' and New Deal Banking Reform," Economics Working Paper Archive wp_76, Levy Economics Institute.
    8. Ali, Robleh & Barrdear, John & Clews, Roger & Southgate, James, 2014. "Innovations in payment technologies and the emergence of digital currencies," Bank of England Quarterly Bulletin, Bank of England, vol. 54(3), pages 262-275.
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    More about this item

    Keywords

    Digital currencies; Money; Monetary policy.;

    JEL classification:

    • 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

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