Monetary Policy with Reserves and CBDC: Optimality, Equivalence, and Politics

48 Pages Posted: 3 Dec 2020

See all articles by Dirk Niepelt

Dirk Niepelt

Swiss National Bank - Study Center Gerzensee; University of Bern - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: 2020

Abstract

We analyze policy in a two-tiered monetary system. Noncompetitive banks issue deposits while the central bank issues reserves and a retail CBDC. Monies differ with respect to operating costs and liquidity. We map the framework into a baseline business cycle model with “pseudo wedges” and derive optimal policy rules: Spreads satisfy modified Friedman rules and deposits must be taxed or subsidized. We generalize the Brunnermeier and Niepelt (2019) result on the macro irrelevance of CBDC but show that a deposit based payment system requires higher taxes. The model implies annual implicit subsidies to U.S. banks of up to 0:8 percent of GDP during the period 1999-2017.

JEL Classification: E420, E430, E510, E520

Suggested Citation

Niepelt, Dirk, Monetary Policy with Reserves and CBDC: Optimality, Equivalence, and Politics (2020). CESifo Working Paper No. 8712, Available at SSRN: https://ssrn.com/abstract=3740324

Dirk Niepelt (Contact Author)

Swiss National Bank - Study Center Gerzensee ( email )

Switzerland

University of Bern - Department of Economics ( email )

Schanzeneckstrasse 1
Bern, CH-3001
Switzerland

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