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Study of the Macroeconomic Effect of Central Bank Digital Currency

【Authors】
XIE Xing, ZHANG Yong & FENG Sixian
【WorkUnit】
XIE Xing (Nanjing Normal University, 210023)ZHANG Yong (Nanjing Audit University, 211815)FENG Sixian (Nanjing Normal University, 210023)
【Abstract】

The impacts and shocks caused by the rapid development of fintech and private digital currencies represented by Bitcoin are forcing central banks to accelerate the development of their own digital currencies, namely central bank digital currency (CBDC). The People's Bank of China (PBC), as China's central bank, has completed preliminary research on and development trials for its own CBDC, basically ready for a launch. This paper studies the macroeconomic effect of such a CBDC based on current expectations for it. This study is done by reconstructing a dynamic stochastic general equilibrium (DSGE) model which includes indicators such as transactional friction and credit friction. The result shows that if the CBDC only replaces cash M0, it will not have a significant impact on the macro economy though it may bring down households' demand for balance of real currencies; when the technology of digital currencies, for example intelligent data processing is widely used and becomes important financial infrastructure in China, the implementation of CBDC will improve the transmission efficiency of monetary policy and reduce the adverse impact of financial shocks to the macro economy. The higher the central bank's anti-inflation target, the more significant the effect of the CBDC as financial infrastructure to reduce the adverse impact of currency shocks on the macro economy.
 
JEL:E42, E58

【KeyWords】
Central Bank Digital Currency, Transactional Friction, Credit Friction, Macro Economy, Anti-Inflation Target