Beyond Bitcoin and Cash: Do We Like a Central Bank Digital Currency? A Financial and Political Economics Approach

18 Pages Posted: 21 Dec 2017 Last revised: 5 May 2018

See all articles by Emanuele Borgonovo

Emanuele Borgonovo

Bocconi University - Department of Decision Sciences

Stefano Caselli

Bocconi University - Department of Finance

Alessandra Cillo

Bocconi University - Department of Decision Sciences

Donato Masciandaro

Bocconi University - Department of Economics

Date Written: December 1, 2017

Abstract

The aim of this paper is to offer a theoretical primer in order to analyse the demand of a central bank digital currency (CBDC). Using a financial portfolio approach and assuming that individual preferences and policy votes are consistent, we identify the drivers of the political consensus in favour or against such as new currency. Given three different properties of a currency – where the first two are the standard functions of medium of exchange and store of value and the third one is the less explored function of store of information – and three different existing moneys – paper currency, banking currency and cryptocurrency – if the individuals are rational but at the same time can be affected by behavioural biases – loss aversion – three different groups of individuals – respectively lovers, neutrals and haters – emerge respect to the CBDC option. Given the alternative opportunity costs of the different currencies, the CBDC issuing is more likely to occur the more the individuals likes to use a legal tender, and/or are indifferent respect to anonymity; at the same time, the probability of the CBDC introduction increases if a return can be paid on it, and/or its implementation can guarantee at least the counterparty anonymity.

Keywords: Central Bank Digital Currencies, Cash, Bitcoin, Cryptocurrencies

JEL Classification: B22, D72, E41, E42, E52, E58, G38, G41, K42

Suggested Citation

Borgonovo, Emanuele and Caselli, Stefano and Cillo, Alessandra and Masciandaro, Donato, Beyond Bitcoin and Cash: Do We Like a Central Bank Digital Currency? A Financial and Political Economics Approach (December 1, 2017). BAFFI CAREFIN Centre Research Paper No. 2017-65. Available at SSRN: https://ssrn.com/abstract=3090866 or http://dx.doi.org/10.2139/ssrn.3090866

Emanuele Borgonovo

Bocconi University - Department of Decision Sciences ( email )

Via Roentgen 1
Milan, 20136
Italy

Stefano Caselli

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Alessandra Cillo

Bocconi University - Department of Decision Sciences ( email )

Via Roentgen 1
Milan, 20136
Italy

Donato Masciandaro (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

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