Central Bank Digital Currency and the Future of Monetary Policy
We consider how a central bank digital currency (CBDC) could transform all aspects of the monetary system and facilitate the systematic and transparent conduct of monetary policy. In particular, we find that CBDC can serve as a practically costless medium of exchange, secure store of value, and stable unit of account. To achieve these criteria, CBDC would be account-based and interest-bearing, and the monetary policy framework would foster true price stability.
Bordo is a professor of economics at Rutgers University, director of the Center for Monetary and Financial History, a research associate of the National Bureau of Economic Research (NBER), and a Distinguished Visiting Fellow at the Hoover Institution, Stanford University. Levin is a professor of economics at Dartmouth College, visiting scholar at the International Monetary Fund and at the Bank of Canada, external advisor to the Bank of Korea, research associate of the NBER, and international research fellow of the Centre for Economic Policy Research (CEPR). This paper is dedicated to the memory of Allan Meltzer. We appreciate many invaluable conversations with Christopher Erceg, Oyvind Eitrheim, Peter Fisher, Marvin Goodfriend, and John Taylor, as well as helpful comments received from participants in workshops and conferences hosted by the Hoover Institution, Cato Institute, Fondo Latinoamericano de Reservas (FLAR), Bank of Canada, Banque de France, Norges Bank, Sveriges Riksbank, and the Swiss National Bank. Nonetheless, the views expressed here are solely those of the authors and do not represent the views of any other person or institution, nor those of the National Bureau of Economic Research.