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A Macroeconomic Model of Central Bank Digital Currency

Author

Listed:
  • Pascal Paul
  • Mauricio Ulate
  • Jing Cynthia Wu

Abstract

We develop a quantitative New Keynesian DSGE model with monopolistic banks to study the macroeconomic effects of introducing a central bank digital currency (CBDC). Households benefit from an expansion of liquidity services and higher deposit rates as bank deposit market power is curtailed, while bank profits and lending decline. We quantify this trade-off across economies that differ in their level of interest rates. We find substantial welfare gains from introducing a CBDC with an optimal rate that can be approximated by a simple rule of thumb: the maximum of 0% and the policy rate minus 1%.

Suggested Citation

  • Pascal Paul & Mauricio Ulate & Jing Cynthia Wu, 2025. "A Macroeconomic Model of Central Bank Digital Currency," NBER Working Papers 33968, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:33968
    Note: AP EFG IFM ME
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    Cited by:

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    2. Abad, Jorge & Nuño, Galo & Thomas, Carlos, 2025. "CBDC and the operational framework of monetary policy," Journal of Monetary Economics, Elsevier, vol. 151(C).

    More about this item

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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