The Macroeconomics of Central Bank Digital Currencies

Abstract We study the macroeconomic consequences of issuing central bank digital currency (CBDC) - a universally-accessible and interest-bearing central bank liability that competes with bank deposits as medium of exchange. In a DSGE model calibrated to match the pre-2008 US, we find that CBDC issuance of 30% of GDP, against government bonds, could permanently raise GDP by 3%, due to lower real interest rates, distortionary taxes, and monetary transaction costs. Countercyclical CBDC policy rules, as a second monetary policy tool, could substantially improve the central bank’s ability to stabilise the business cycle. Risks to banks can be minimized through appropriate issuance arrangements.