Should the Central Bank Issue E-Money?

Abstract

Should a central bank take over the provision of e-money, a circulable electronic liability? We discuss how e-money technology changes the tradeoff between public and private provision, and the tradeoff between e-money and a central bank's existing liabilities like bank notes and reserves. The tradeoffs depend on i) the technological setup of the e-money system (as a token or an account; centralized or decentralized); ii) the potential improvement in the implementation and transmission of monetary policy; iii) the risks to safety and privacy from cyber attacks; and iv) the uncertain impact on banks' efficiency and financial stability. The most compelling argument for central banks to issue e-money is to address competition problems in the banking sector.

Central Bank Digital Currency and Banking

“…First, we assume that banks incur a management cost c per unit of deposits. 25 Second, we allow sellers in the DM to have some market power. Specifically, in the DM, the terms of trade are determined by Kalai bargaining, and the buyer's bargaining power is θ.…”

Designing Central Bank Digital Currencies

“…Beyond satisfying household preferences, the disappearance of cash may reduce economic activity when a portion of the population is unable or unwilling to transact with digital payment methods because of digital illiteracy or informality. See Chodorow-Reich et al (2018) for an empirical assessment of such costs.9 There is also a sizeable policy literature discussing the financial stability effects of CBDC (see, e.g.,Bech and Garratt, 2017;Fung and Halaburda, 2016;He et al, 2017;Kahn et al, 2019). 3 ©International Monetary Fund.…”