Central Bank Digital Currency in an Open Economy

69 Pages Posted: 19 Nov 2020

See all articles by Massimo Minesso Ferrari

Massimo Minesso Ferrari

European Central Bank (ECB)

Arnaud Mehl

European Central Bank (ECB)

Livio Stracca

European Central Bank (ECB)

Multiple version iconThere are 2 versions of this paper

Date Written: November, 2020

Abstract

We examine the open-economy implications of the introduction of a central bank digital currency (CBDC).We add a CBDC to the menu of monetary assets available in a standard two-country DSGE model with financial frictions and consider a broad set of alternative technical features in CBDC design. We analyse the international transmission of standard monetary policy and technology shocks in the presence and absence of a CDBC and the implications for optimal monetary policy and welfare. The presence of a CBDC amplifies the international spillovers of shocks to a significant extent, thereby increasing international linkages. But the magnitude of these effects depends crucially on CBDC design and can be significantly dampened if the CBDC possesses specific technical features. We also show that domestic issuance of a CBDC increases asymmetries in the international monetary system by reducing monetary policy autonomy in foreign economies.

Keywords: central bank digital currency, DSGE model, international monetary system, open-economy, optimal monetary policy

JEL Classification: E50, F30

Suggested Citation

Ferrari, Massimo Minesso and Mehl, Arnaud and Stracca, Livio, Central Bank Digital Currency in an Open Economy (November, 2020). ECB Working Paper No. 20202488, Available at SSRN: https://ssrn.com/abstract=3733463

Massimo Minesso Ferrari (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Arnaud Mehl

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Livio Stracca

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
0049 69 13440 (Phone)
0044 69 1344 6000 (Fax)

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