Central bank digital currency in an open economy.

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Date: Apr. 2022
Publisher: Elsevier B.V.
Document Type: Report; Brief article
Length: 370 words

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Abstract :

Keywords Central bank digital currency; DSGE model; Open-economy; Optimal monetary policy; International monetary system Highlights * We examine the open-economy implications of the introduction of a central bank digital currency (CBDC). * We analyze the international transmission of standard monetary policy and technology shocks in the presence and absence of a CDBC. * The presence of a CBDC amplifies the international spill-overs of shocks to a significant extent. * The magnitude of these effects depends crucially on CBDC design * Domestic issuance of a CBDC increases asymmetries in the international monetary system. Abstract A two-country DSGE model with central bank digital currency (CBDC) is derived and used to analyze the open-economy implications of CBDC for the transmission of shocks, optimal monetary policy and welfare. The presence of a CBDC amplifies the international spillovers of shocks and increases international linkages. The magnitude of the effects depends crucially on the design of CBDC. Moreover, issuance of a CBDC by one economy increases asymmetries in the international monetary system by reducing monetary policy autonomy and welfare in the other economy. Author Affiliation: (a) European Central Bank, Sonnemannstraße 20, Frankfurt am Main 60314, Germany (b) European Central Bank and Center for Economic Policy Research * Corresponding author at: European Central Bank and CEPR, Sonnemannstraße 20, Frankfurt am Main 60314, Germany Article History: Received 25 May 2021; Revised 28 January 2022; Accepted 1 February 2022 (footnote)[white star] We would like to thank the editor (Urban Jermann), two anonymous referees, Claus Brand, Michele Ca'Zorzi, Luca Dedola, Domenico Delli Gatti, Ivan Jaccard, Jean-François Jamet, Giovanni Lombardo, Richard Lyons, Cyril Monnet, Gernot Müller, Dirk Niepelt, Maria Sole Pagliari, Fabio Panetta, Paolo Pesenti, Cédric Tille, participants in seminars at the Banca d'Italia, the Graduate Institute Geneva, the European Central Bank, the Federal Reserve Board of Governors, the National Bank of Ukraine, the Swiss National Bank, Università Cattolica del Sacro Cuore and the 2021 meetings of the American Economic Association and 2020 annual meeting of CEBRA's International Finance and Macroeconomics program for comments and suggestions. The views expressed here are those of the authors and do not necessarily reflect those of the European Central Bank or the Eurosystem. Byline: Massimo Ferrari Minesso (a), Arnaud Mehl [arnaud.mehl@ecb.europa.eu] (b), Livio Stracca (*,a)

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Gale Document Number: GALE|A700885615