Discussion paper

DP15457 Monetary Policy with Reserves and CBDC: Optimality, Equivalence, and Politics

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.

£6.00
Citation

Niepelt, D (2020), “DP15457 Monetary Policy with Reserves and CBDC: Optimality, Equivalence, and Politics”, CEPR Press Discussion Paper No. 15457. https://cepr.org/publications/dp15457