IMF Working Papers

Designing Central Bank Digital Currencies

By Itai Agur, Anil Ari, Giovanni Dell'Ariccia

November 18, 2019

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Itai Agur, Anil Ari, and Giovanni Dell'Ariccia. Designing Central Bank Digital Currencies, (USA: International Monetary Fund, 2019) accessed December 23, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Bank deposits, Banking, Central Bank digital currencies, Currencies, Deposit rates, Financial markets, Financial services, Money, Payment systems, Technology

Keywords: Bank deposits, Cash equilibrium, Cash holder, CBDC design, CBDC interest rate, CBDC rate, CBDC risk, Central bank, Central Bank digital currencies, Currencies, Deposit rates, Interest rate, Interest-bearing CBDC, Market power, Payment systems, WP

Publication Details

  • Pages:

    38

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2019/252

  • Stock No:

    WPIEA2019252

  • ISBN:

    9781513519883

  • ISSN:

    1018-5941

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