Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/266517 
Authors: 
Year of Publication: 
2022
Series/Report no.: 
Discussion Papers No. 22-12
Publisher: 
University of Bern, Department of Economics, Bern
Abstract: 
We analyze retail central bank digital currency (CBDC) in a two-tier monetary system with bank deposit market power and externalities from liquidity transformation. Resource costs of liquidity provision determine the optimal monetary architecture and modified Friedman (1969) rules the optimal monetary policy. Optimal interest rates on reserves and CBDC differ. A calibration for the U.S. suggests a weak case for CBDC in the baseline but a much clearer case when too-big-to-fail banks, tax distortions or instrument restrictions are present. Depending on central bank choices CBDC raises U.S. bank funding costs by up to 1.5 percent of GDP.
Subjects: 
Central bank digital currency
reserves
two-tier system
bank
liquidity
equivalence
JEL: 
E42
E43
E51
E52
G21
G28
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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