Working Paper: CEPR ID: DP13778
Authors: Markus Brunnermeier; Dirk Niepelt
Abstract: We develop a generic model of money and liquidity that identites sources of liquidity bubbles and seignorage rents. We provide sufficient conditions under which a swap of monies leaves the equilibrium allocation and price system unchanged. We apply the equivalence result to the "Chicago Plan," cryptocurrencies, the Indian de-monetization experiment, and Central Bank Digital Currency (CBDC). In particular, we show why CBDC need not undermine financial stability.
Keywords: money creation; monetary system; inside money; outside money; equivalence; CBDC; Chicago Plan; sovereign money
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| swap of public for private money (H44) | does not choke off credit or crowd out investment (E51) |
| introduction of central bank digital currency (CBDC) (E42) | does not undermine financial stability (F65) |
| liquidity neutrality (E41) | essential for equivalence (C20) |
| CBDC is risk-free and complements existing deposits (G28) | does not necessitate additional transfers to maintain equilibrium (D50) |
| swap does not change wealth distribution (D39) | liquidity neutrality holds (E41) |
| swap does not tighten or relax means-of-payment constraints (F33) | liquidity neutrality holds (E41) |