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
JEL(s):
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.