Designing Central Bank Digital Currencies

39 Pages Posted: 22 Jan 2020

See all articles by Itai Agur

Itai Agur

IMF

Anil Ari

International Monetary Fund

Giovanni Dell'Ariccia

International Monetary Fund (IMF) - Research Department; Centre for Economic Policy Research (CEPR)

Date Written: November 2019

Abstract

We study the optimal design of a central bank digital currency (CBDC) in an environment where agents sort into cash, CBDC and bank deposits according to their preferences over anonymity and security; and where network effects make the convenience of payment instruments dependent on the number of their users. CBDC can be designed with attributes similar to cash or deposits, and can be interest-bearing: a CBDC that closely competes with deposits depresses bank credit and output, while a cash-like CBDC may lead to the disappearance of cash. Then, the optimal CBDC design trades off bank intermediation against the social value of maintaining diverse payment instruments. When network effects matter, an interest-bearing CBDC alleviates the central bank's tradeoff.

Keywords: Central banks, Financial systems, Central banking, Interest rates on loans, Interest rates on deposits, CBDC, Fintech, Digital currency, Financial intermediation, Network effects., WP, intermediation, interest-bearing, network effect, network externality, central bank

JEL Classification: E41, E58, G28, G21, E01, E52, P, M41

Suggested Citation

Agur, Itai and Ari, Anil and Dell'Ariccia, Giovanni, Designing Central Bank Digital Currencies (November 2019). IMF Working Paper No. 19/252. Available at SSRN: https://ssrn.com/abstract=3523125

Itai Agur (Contact Author)

IMF ( email )

700 19th Street NW
Washington, DC 20431
United States

HOME PAGE: http://itaiagur.weebly.com/

Anil Ari

International Monetary Fund ( email )

700 19th Street NW
Washington, DC 20431
United States

HOME PAGE: http://https://sites.google.com/site/anlari/

Giovanni Dell'Ariccia

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-8135 (Phone)
202-623-4352 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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