DP13778 On the Equivalence of Private and Public Money
|Author(s):||Markus K Brunnermeier, Dirk Niepelt|
|Publication Date:||June 2019|
|Keyword(s):||CBDC, Chicago Plan, equivalence, Inside money, monetary system, money creation, outside money, sovereign money|
|Programme Areas:||Financial Economics, International Macroeconomics and Finance, Monetary Economics and Fluctuations, Macroeconomics and Growth|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=13778|
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.