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Designing Central Bank Digital Currencies

Author

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  • Mr. Itai Agur
  • Mr. Anil Ari
  • Mr. Giovanni Dell'Ariccia

Abstract

We study the optimal design of a central bank digital currency (CBDC) in an environment where agents sort into cash, CBDC and bank deposits according to their preferences over anonymity and security; and where network effects make the convenience of payment instruments dependent on the number of their users. CBDC can be designed with attributes similar to cash or deposits, and can be interest-bearing: a CBDC that closely competes with deposits depresses bank credit and output, while a cash-like CBDC may lead to the disappearance of cash. Then, the optimal CBDC design trades off bank intermediation against the social value of maintaining diverse payment instruments. When network effects matter, an interest-bearing CBDC alleviates the central bank's tradeoff.

Suggested Citation

  • Mr. Itai Agur & Mr. Anil Ari & Mr. Giovanni Dell'Ariccia, 2019. "Designing Central Bank Digital Currencies," IMF Working Papers 2019/252, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2019/252
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    More about this item

    Keywords

    WP; central bank; interest rate; market power; CBDC design; interest-bearing CBDC; cash equilibrium; CBDC rate; cash holder; CBDC interest rate; CBDC risk; Central Bank digital currencies; Currencies; Payment systems; Bank deposits; Deposit rates;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • 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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