Money and Banking with Reserves and CBDC

Dirk Niepelt

Diskussionsschriften from Universitaet Bern, Departement Volkswirtschaft

Abstract: We analyze retail central bank digital currency (CBDC) in a two-tier monetary system with bank deposit market power and externalities from liquidity transformation. Resource costs of liquidity provision determine the optimal monetary architecture and modified Friedman (1969) rules the optimal monetary policy. Optimal interest rates on reserves and CBDC differ. A calibration for the U.S. suggests a weak case for CBDC in the baseline but a much clearer case when too-big-to-fail banks, tax distortions or instrument restrictions are present. Depending on central bank choices CBDC raises U.S. bank funding costs by up to 1.5 percent of GDP

Keywords: Central bank digital currency; reserves; two-tier system; bank; liquidity; equivalence (search for similar items in EconPapers)
JEL-codes: E42 E43 E51 E52 G21 G28 (search for similar items in EconPapers)
Date: 2022-10
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-mon and nep-pay
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Money and Banking with Reserves and CBDC (2024)
Working Paper: Money and Banking with Reserves and CBDC (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ube:dpvwib:dp2212

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