DP13065 Reserves For All? Central Bank Digital Currency, Deposits, and their (Non)-Equivalence

Author(s): Dirk Niepelt
Publication Date: July 2018
Keyword(s): CADcoin, CBDC, e-krona, e-Peso, Fedcoin, J Coin, narrow banking
JEL(s): E42, E51, E58, E61, E63, H63
Programme Areas: Public Economics, Financial Economics, International Macroeconomics and Finance, Monetary Economics and Fluctuations, Macroeconomics and Growth
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=13065

I offer a macroeconomic perspective on the "Reserves for All" (RFA) proposal to let the general public use electronic central bank money. After distinguishing RFA from cryptocurrencies and relating the proposal to discussions about narrow banking and the abolition of cash I propose an equivalence result according to which a marginal substitution of outside for inside money does not affect macroeconomic outcomes. I identify key conditions on bank and government (central bank) incentives for equivalence and argue that these conditions likely are violated, implying that RFA would change macroeconomic outcomes. I also relate my analysis to common arguments in the discussion about RFA and point to inconsistencies and open questions.