DP15457 Monetary Policy with Reserves and CBDC: Optimality, Equivalence, and Politics
Author(s): | Dirk Niepelt |
Publication Date: | November 2020 |
Keyword(s): | bank profits, Central bank digital currency, deposits, equivalence, Friedman Rule, monetary policy, money creation, Ramsey Policy, Reserves |
JEL(s): | E42, E43, E51, E52, G21 |
Programme Areas: | Public Economics, Financial Economics, International Macroeconomics and Finance, Monetary Economics and Fluctuations |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=15457 |
We analyze policy in a two-tiered monetary system. Noncompetitive banks issue deposits while the central bank issues reserves and a retail CBDC. Monies differ with respect to operating costs and liquidity. We map the framework into a baseline business cycle model with "pseudo wedges" and derive optimal policy rules: Spreads satisfy modified Friedman rules and deposits must be taxed or subsidized. We generalize the Brunnermeier and Niepelt (2019) result on the macro irrelevance of CBDC but show that a deposit based payment system requires higher taxes. The model implies annual implicit subsidies to U.S. banks of up to 0.8 percent of GDP during the period 1999-2017.