Abstract
| Original language | English |
|---|---|
| Place of Publication | Frederiksberg |
| Publisher | Copenhagen Business School, CBS |
| Number of pages | 57 |
| Publication status | Published - 2017 |
Keywords
- Central banks
- Money creation
- Digital currency
- Monetary policy
- Policy trilemma
Cite this
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Designing New Money : The Policy Trilemma of Central Bank Digital Currency. / Bjerg, Ole.
Frederiksberg : Copenhagen Business School, CBS, 2017.Research output: Working paper › Research
TY - UNPB
T1 - Designing New Money
T2 - The Policy Trilemma of Central Bank Digital Currency
AU - Bjerg, Ole
PY - 2017
Y1 - 2017
N2 - The prospect of central banks issuing digital currency (CBDC) immediately raises the question of how this new form of money should co-exist and interact with exist-ing forms of money. This paper evaluates three different scenarios for the imple-mentation of CBDC in terms of their monetary policy implications. In the ‘money user scenario’ CBDC co-exists with both cash and commercial bank deposits. In the ‘money manager scenario’ cash is abolished and CBDC co-exists only with commer-cial bank deposits. And in the ‘money maker scenario’ commercial bank deposits are abolished and CBDC co-exist only with cash. The evaluation is based on an adaption of the classical international monetary policy trilemma to a domestic monetary sys-tem with multiple forms of money. Our proposition is that a monetary system with two competing money creators, the central bank and the commercial banking sec-tor, can simultaneously only pursue two out of the following three policy objectives: Free convertibility between CBDC and bank money, parity between CBDC and bank money, and central bank monetary sovereignty, which is the use of monetary policy for anything else than support for commercial bank credit creation. This means that the decision on the design of a monetary system with CBDC implies a crucial politi-cal decision on the priorities of the central bank.
AB - The prospect of central banks issuing digital currency (CBDC) immediately raises the question of how this new form of money should co-exist and interact with exist-ing forms of money. This paper evaluates three different scenarios for the imple-mentation of CBDC in terms of their monetary policy implications. In the ‘money user scenario’ CBDC co-exists with both cash and commercial bank deposits. In the ‘money manager scenario’ cash is abolished and CBDC co-exists only with commer-cial bank deposits. And in the ‘money maker scenario’ commercial bank deposits are abolished and CBDC co-exist only with cash. The evaluation is based on an adaption of the classical international monetary policy trilemma to a domestic monetary sys-tem with multiple forms of money. Our proposition is that a monetary system with two competing money creators, the central bank and the commercial banking sec-tor, can simultaneously only pursue two out of the following three policy objectives: Free convertibility between CBDC and bank money, parity between CBDC and bank money, and central bank monetary sovereignty, which is the use of monetary policy for anything else than support for commercial bank credit creation. This means that the decision on the design of a monetary system with CBDC implies a crucial politi-cal decision on the priorities of the central bank.
KW - Central banks
KW - Money creation
KW - Digital currency
KW - Monetary policy
KW - Policy trilemma
KW - Central banks
KW - Money creation
KW - Digital currency
KW - Monetary policy
KW - Policy trilemma
M3 - Working paper
BT - Designing New Money
PB - Copenhagen Business School, CBS
CY - Frederiksberg
ER -