Working Paper: CEPR ID: DP13065
Authors: Dirk Niepelt
Abstract: I offer a macroeconomic perspective on the "Reserves for All" (RFA) proposal to let the general public use electronic central bank money. After distinguishing RFA from cryptocurrencies and relating the proposal to discussions about narrow banking and the abolition of cash I propose an equivalence result according to which a marginal substitution of outside for inside money does not affect macroeconomic outcomes. I identify key conditions on bank and government (central bank) incentives for equivalence and argue that these conditions likely are violated, implying that RFA would change macroeconomic outcomes. I also relate my analysis to common arguments in the discussion about RFA and point to inconsistencies and open questions.
Keywords: CBDC; Fedcoin; Cadcoin; Ekrona; Epeso; J Coin; Narrow Banking
JEL Codes: E42; E51; E58; E61; E63; H63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bank and government incentives align (G21) | marginal substitution of outside money does not change macroeconomic outcomes (E19) |
| conditions likely violated (K42) | implementation of RFA would change macroeconomic outcomes (E65) |
| insufficient bank incentives to monitor loans (G21) | riskier financial environment (F65) |
| shift to RFA (R50) | alter political support for central bank interventions (E58) |
| shift to RFA (R50) | alter implicit guarantees provided to banks (G21) |