CBDC IN AN OPEN ECONOMY

A working paper issued by the European Central Bank examines the open-economy implications of the introduction of a central bank digital currency (CBDC) and analyses the international transmission of standard monetary policy and technology shocks in the presence and absence of a CDBC and the implications for optimal monetary policy and welfare.

The outcomes show that the presence of a CBDC amplifies the international spillovers of shocks to a significant extent.

But from the CBDC design depends on the magnitude of these effects with the results that they can be significantly dampened if the CBDC possesses specific technical features.

ABSTRACT:

“We examine the open-economy implications of the introduction of a central bank digital currency (CBDC).”

“We add a CBDC to the menu of monetary assets available in a standard two-country DSGE model with financia frictions and consider a broad set of alternative technical features in CBDC design.”

“We analyse the international transmission of standard monetary policy and technology shocks in the presence
and absence of a CDBC and the implications for optimal monetary policy and welfare.”

“The presence of a CBDC amplifies the international spillovers of shocks to a significant extent, thereby increasing international linkages. But the magnitude of these effects depends crucially on CBDC design and can be significantly dampened if the CBDC possesses specific technical features.“

“We also show that domestic issuance of a CBDC increases asymmetries in the international monetary system by reducing monetary policy autonomy in foreign economies.”

Read more HERE : WORKING PAPER SERIES

Souce: Europan Central Bank