Citation

Discussion Paper Details

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Title: Central bank digital currency in an open economy

Author(s): Massimo Ferrari, Arnaud Mehl and Livio Stracca

Publication Date: October 2020

Keyword(s): Central bank digital currency, DSGE model, international monetary system, open-economy and Optimal monetary policy

Programme Area(s): International Macroeconomics and Finance

Abstract: We examine the open-economy implications of the introduction of a central bank digital currency (CBDC). We add a CBDC to the menu of monetary assets available in a standard two-country DSGE model and consider a broad set of alternative technical features in CBDC design. We analyse the international transmission of standard monetary policy and technology shocks in the presence and absence of a CDBC and the implications for optimal monetary policy and welfare. The presence of a CBDC amplifies the international spillovers of shocks to a significant extent, thereby increasing international linkages. But the magnitude of these effects depends crucially on CBDC design and can be significantly dampened if the CBDC possesses specific technical features. We also show that domestic issuance of a CBDC increases asymmetries in the international monetary system by reducing monetary policy autonomy in foreign economies.

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Bibliographic Reference

Ferrari, M, Mehl, A and Stracca, L. 2020. 'Central bank digital currency in an open economy'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15335