Digital Money and Central Bank Operations

23 Pages Posted: 24 May 2022

See all articles by Charles Kahn

Charles Kahn

University of Illinois at Urbana-Champaign

Manmohan Singh

International Monetary Fund (IMF)

Jihad ALwazir

International Monetary Fund (IMF)

Date Written: May 1, 2022

Abstract

The rise of new and proposed monetary vehicles, including CBDC, stablecoins, payment service providers etc., are unprecedented. An important question for central banks is the extent to which these innovations upend the role of and implementation of monetary policy. The paper focuses on the interest rate channel and if digital money (especially CBDC) will change monetary policy and central bank operations. We argue that new policy instruments make sense only to the extent that there is limited substitutability between the various payment sectors. We analyze trends in currency-in-circulation, and how it may impact central bank’s seigniorage, monetary base, and transactional velocity of digital money if money demand declines. Liquidity outside the monetary base will also be important to understand.

Keywords: Base money, CBDC, central banking operations, currency in circulation, digital money, mobile phone operators, seigniorage, central bank operations Charles Kahn, jihad Alwazir, lender-of-last-resort facilities, payments assets, phone company payments account, central bank profits, central bank regulation, Monetary base, Digital currencies, Central Bank digital currencies, Currencies, Commercial banks

JEL Classification: E50, E41, G15, F30, E42, G21, E58

Suggested Citation

Kahn, Charles and Singh, Manmohan and ALwazir, Jihad, Digital Money and Central Bank Operations (May 1, 2022). IMF Working Paper No. 2022/085, Available at SSRN: https://ssrn.com/abstract=4117835

Charles Kahn (Contact Author)

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL 61820
United States

Manmohan Singh

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Jihad ALwazir

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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