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Monetary policy and reserve requirements with a zero-interest digital euro

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  • Fegatelli, Paolo

Abstract

This study presents an analytical framework to investigate the use of reserve requirements as an indirect instrument to manage CBDC flows in an environment with significantly positive rates. This would complement two other possible instruments: hard limits, whose sole use may raise some concerns, and CBDC remuneration, which in a positive rate environment is not considered a viable option. As in the case of emerging market economies with a flexible exchange rate, in a CBDC framework reserve requirements could be used as a countercyclical tool for macroeconomic stabilization to influence bank lending/funding conditions consistently with the monetary policy stance. In an ample-reserves regime, the effectiveness of this tool would be favored by retaining the interest rate on required reserves and the interest rate on excess reserves (the real key policy rate) as two distinct policy instruments, with the former remaining stable below the latter.

Suggested Citation

  • Fegatelli, Paolo, 2024. "Monetary policy and reserve requirements with a zero-interest digital euro," Journal of Macroeconomics, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:jmacro:v:80:y:2024:i:c:s0164070424000120
    DOI: 10.1016/j.jmacro.2024.103597
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    More about this item

    Keywords

    Reserve requirement; Central bank digital currency; Digital euro; Monetary policy; Excess reserves; Bank lending;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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