The Macroeconomics of Central Bank Issued Digital Currencies

92 Pages Posted: 18 Jul 2016

Date Written: July 18, 2016


We study the macroeconomic consequences of issuing central bank digital currency (CBDC) — a universally accessible and interest-bearing central bank liability, implemented via distributed ledgers, that competes with bank deposits as medium of exchange. In a DSGE model calibrated to match the pre-crisis United States, we find that CBDC issuance of 30% of GDP, against government bonds, could permanently raise GDP by as much as 3%, due to reductions in real interest rates, distortionary taxes, and monetary transaction costs. Countercyclical CBDC price or quantity rules, as a second monetary policy instrument, could substantially improve the central bank’s ability to stabilise the business cycle.

Keywords: Distributed ledgers, blockchain, banks, financial intermediation, bank lending, money creation, money demand, endogenous money, countercyclical policy

JEL Classification: E41, E42, E44, E51, E52, E58, G21

Suggested Citation

Barrdear, John and Kumhof, Michael, The Macroeconomics of Central Bank Issued Digital Currencies (July 18, 2016). Bank of England Working Paper No. 605, Available at SSRN: or

John Barrdear (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Michael Kumhof

CEPR ( email )

United Kingdom

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