Working Paper: NBER ID: w30709
Authors: Michael D. Bordo; William Roberds
Abstract: We consider the debut of a new monetary instrument, central bank digital currencies (CBDCs). Drawing on examples from monetary history, we argue that a successful monetary transformation must combine microeconomic efficiency with macroeconomic credibility. A paradoxical feature of these transformations is that success in the micro dimension can encourage macro failure. Overcoming this paradox may require politically uncomfortable compromises. We propose that such compromises will be necessary for the success of CBDCs.
Keywords: Central Bank Digital Currencies; Monetary History; Microeconomic Efficiency; Macroeconomic Credibility
JEL Codes: E42; E58; N10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Microeconomic efficiency (D61) | Macroeconomic credibility (E61) |
| Microeconomic efficiency (D61) | Macroeconomic instability (E32) |
| Opacity of currency value (F31) | Excessive issuance (E42) |
| Perceived safety of money (E41) | Potential for devaluation (F31) |
| Willingness to engage in compromises (D74) | Success of CBDCs (E42) |