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Central Bank Digital Currency and Cash: Choice Based on Baumol's Theory

Author

Listed:
  • Fengqi Xie

    (Tomsk State University)

  • Marina V. Ryzhkova

    (Tomsk State University / Tomsk Polytechnic University)

Abstract

With the rapid growth of the digital economy, digital currency has emerged as a prominent area of research. Central Bank Digital Currency (CBDC), issued by the central bank and backed by its liability, has garnered significant attention. This article builds upon Baumol's money demand theory to conduct an extensive analysis of the factors influencing the choice between cash and CBDC, as well as the selection of currency usage. It finds that the decision to adopt either cash or CBDC is often driven by the lower holding costs associated with the latter. Additionally, various factors such as public perception, government policies, and social acceptance contribute to the prolonged coexistence of cash and CBDC. Although CBDC in their current state may not completely replace traditional currencies, they are projected to have a substantial impact on the future of financial transactions.

Suggested Citation

  • Fengqi Xie & Marina V. Ryzhkova, 0000. "Central Bank Digital Currency and Cash: Choice Based on Baumol's Theory," Proceedings of Economics and Finance Conferences 14416317, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iefpro:14416317
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    References listed on IDEAS

    as
    1. William J. Baumol, 1952. "The Transactions Demand for Cash: An Inventory Theoretic Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 66(4), pages 545-556.
    2. Shy, Oz & Tarkka, Juha, 2002. "The Market for Electronic Cash Cards," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(2), pages 299-314, May.
    3. Reistad, Dale L., 1967. "The coming cashless society," Business Horizons, Elsevier, vol. 10(3), pages 23-32.
    4. Arango, Carlos & Huynh, Kim P. & Sabetti, Leonard, 2015. "Consumer payment choice: Merchant card acceptance versus pricing incentives," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 130-141.
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    More about this item

    Keywords

    Digitalization; central bank digital currency; CBDC; cash; Baumol's money demand theory;
    All these keywords.

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