IMF Working Papers

Digital Money and Central Bank Operations

By Charles M. Kahn, Manmohan Singh, Jihad Alwazir

May 6, 2022

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Format: Chicago

Charles M. Kahn, Manmohan Singh, and Jihad Alwazir. Digital Money and Central Bank Operations, (USA: International Monetary Fund, 2022) accessed November 21, 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

The rise of new and proposed monetary vehicles, including CBDC, stablecoins, payment service providers etc., are unprecedented. An important question for central banks is the extent to which these innovations upend the role of and implementation of monetary policy. The paper focuses on the interest rate channel and if digital money (especially CBDC) will change monetary policy and central bank operations. We argue that new policy instruments make sense only to the extent that there is limited substitutability between the various payment sectors. We analyze trends in currency-in-circulation, and how it may impact central bank’s seigniorage, monetary base, and transactional velocity of digital money if money demand declines. Liquidity outside the monetary base will also be important to understand.

Subject: Central Bank digital currencies, Commercial banks, Currencies, Digital currencies, Financial institutions, Monetary base, Money, Technology

Keywords: Base money, CBDC, Central Bank digital currencies, Central bank operations Charles Kahn, Central bank profits, Central bank regulation, Central banking operations, Commercial banks, Currencies, Currency in circulation, Digital currencies, Digital money, Jihad Alwazir, Lender-of-last-resort facilities, Mobile phone operators, Monetary base, Payments assets, Phone company payments account, Seigniorage

Publication Details

  • Pages:

    23

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2022/085

  • Stock No:

    WPIEA2022085

  • ISBN:

    9798400206955

  • ISSN:

    1018-5941

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