Discussion Paper Details

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Title: On the Equivalence of Private and Public Money

Author(s): Markus K Brunnermeier and Dirk Niepelt

Publication Date: June 2019

Keyword(s): CBDC, Chicago Plan, equivalence, Inside money, monetary system, money creation, outside money and sovereign money

Programme Area(s): Financial Economics, International Macroeconomics and Finance, Macroeconomics and Growth and Monetary Economics and Fluctuations

Abstract: We develop a generic model of money and liquidity that identites sources of liquidity bubbles and seignorage rents. We provide sufficient conditions under which a swap of monies leaves the equilibrium allocation and price system unchanged. We apply the equivalence result to the "Chicago Plan," cryptocurrencies, the Indian de-monetization experiment, and Central Bank Digital Currency (CBDC). In particular, we show why CBDC need not undermine financial stability.

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Bibliographic Reference

Brunnermeier, M and Niepelt, D. 2019. 'On the Equivalence of Private and Public Money'. London, Centre for Economic Policy Research.