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The macroeconomics of central bank issued digital currencies

Listed author(s):
  • Barrdear, John

    ()

    (Bank of England)

  • Kumhof, Michael

    ()

    (Bank of England)

We study the macroeconomic consequences of issuing central bank digital currency (CBDC) — a universally accessible and interest-bearing central bank liability, implemented via distributed ledgers, that competes with bank deposits as medium of exchange. In a DSGE model calibrated to match the pre-crisis United States, we find that CBDC issuance of 30% of GDP, against government bonds, could permanently raise GDP by as much as 3%, due to reductions in real interest rates, distortionary taxes, and monetary transaction costs. Countercyclical CBDC price or quantity rules, as a second monetary policy instrument, could substantially improve the central bank’s ability to stabilise the business cycle.

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Paper provided by Bank of England in its series Bank of England working papers with number 605.

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Length: 92 pages
Date of creation: 18 Jul 2016
Handle: RePEc:boe:boeewp:0605
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