Digital Money and Central Bank Operations

Author/Editor:

Charles M. Kahn ; Manmohan Singh ; Jihad Alwazir

Publication Date:

May 6, 2022

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

The rise of new and proposed monetary vehicles, including CBDC, stablecoins, payment service providers etc., are unprecedented. An important question for central banks is the extent to which these innovations upend the role of and implementation of monetary policy. The paper focuses on the interest rate channel and if digital money (especially CBDC) will change monetary policy and central bank operations. We argue that new policy instruments make sense only to the extent that there is limited substitutability between the various payment sectors. We analyze trends in currency-in-circulation, and how it may impact central bank’s seigniorage, monetary base, and transactional velocity of digital money if money demand declines. Liquidity outside the monetary base will also be important to understand.

Series:

Working Paper No. 2022/085

Frequency:

regular

English

Publication Date:

May 6, 2022

ISBN/ISSN:

9798400206955/1018-5941

Stock No:

WPIEA2022085

Pages:

23

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