Central Bank Digital Currency in Brazil

31 Pages Posted: 12 Jul 2021

Date Written: July 8, 2021

Abstract

We calibrate to the Brazilian economy a model of means of payment choice, where households have different preferences over anonymity. Financial sector is monopolistically competitive and may break the link between borrowing and lending rates. A sufficiently attractive digital currency reduces holdings of both cash and bank deposits. Since cash use is costly, the digital currency may increase welfare. However, if banks are liquidity constrained, the digital currency may result in less loans and output, and then reduce welfare. The digital currency interest remuneration can be set and be adjusted overtime to optimally balance this trade-off.

Keywords: digital currency, central bank, financial intermediation, cash, liquidity, Brazil

JEL Classification: E41, E58, G21

Suggested Citation

Pinho de Mello, Joao Manoel and Kanczuk, Isabella, Central Bank Digital Currency in Brazil (July 8, 2021). Available at SSRN: https://ssrn.com/abstract=3882911 or http://dx.doi.org/10.2139/ssrn.3882911

Joao Manoel Pinho de Mello

Banco Central do Brasil ( email )

Setor Bancário Sul SBS - Quadra 3 - Bloco B
Brasilia, 70074-90
Brazil
+55 61 3 414 1414. (Phone)
+55 61 3 414 2553 (Fax)

HOME PAGE: http://https://www.bcb.gov.br

Isabella Kanczuk (Contact Author)

Milton Academy ( email )

170 Centre St.
Milton, MA 02186
(617) 898-1798 (Phone)
(617) 898-1798 (Fax)

HOME PAGE: http://https://www.milton.edu

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