Working Paper: NBER ID: w23711
Authors: Michael D. Bordo; Andrew T. Levin
Abstract: We consider how a central bank digital currency (CBDC) could transform all aspects of the monetary system and facilitate the systematic and transparent conduct of monetary policy. In particular, we find that CBDC can serve as a practically costless medium of exchange, secure store of value, and stable unit of account. To achieve these criteria, CBDC would be account-based and interest-bearing, and the monetary policy framework would foster true price stability.
Keywords: Central Bank Digital Currency; Monetary Policy; Digital Currency
JEL Codes: B12; B13; B22; E42; E52; E58; E63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| CBDC (E42) | medium of exchange (E42) |
| CBDC (E42) | efficiency of the payments system (E42) |
| interest-bearing CBDC (E42) | secure store of value (E42) |
| CBDC interest rate (E43) | monetary policy tool (E52) |
| design of CBDC (E58) | obsolescence of paper currency (E42) |
| CBDC interest rate adjustments (E52) | price stability (E31) |
| widespread adoption of CBDC (E42) | discourage illegal activities (K42) |