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Proposing an interval design feature to Central Bank Digital Currencies

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  • Tata, Fidelio

Abstract

We are witnessing the creation of a new class of financial market products in the form of Central Bank Digital Currencies. While those instruments are still at an embryonic stage and their final form and shape is still unknown, it is already obvious that they are extremely flexible instruments due to their potential digital features. This paper adds to the extensive and rapidly growing literature by proposing a new type of Central Bank Digital Currency with an embedded time-limitation design feature based on a validity interval within which time-period the digital currency is an effective claim against the central bank. We call this interval Central Bank Digital Currency. Focusing on four use cases, we analyze the merits of the proposed interval design feature. We find that there are several potential applications in the context of liquidity management, lending, monetary policy of central banks and derivative transactions. It can be argued that interval CBDC have several potential advantages, including the reduction of counterparty credit risk, enabling remuneration, and enlarging the monetary and fiscal toolkit.

Suggested Citation

  • Tata, Fidelio, 2023. "Proposing an interval design feature to Central Bank Digital Currencies," Research in International Business and Finance, Elsevier, vol. 64(C).
    • Handle: RePEc:eee:riibaf:v:64:y:2023:i:c:s0275531923000247
    DOI: 10.1016/j.ribaf.2023.101898
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    References listed on IDEAS

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    1. Kenneth S. Rogoff, 2016. "The Curse of Cash," Economics Books, Princeton University Press, edition 1, number 10798.
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    Cited by:

    1. Ayadi, Ahmed & Ghabri, Yosra & Guesmi, Khaled, 2023. "Directional predictability from central bank digital currency to cryptocurrencies and stablecoins," Research in International Business and Finance, Elsevier, vol. 65(C).
    2. Al-Omoush, Khaled Saleh & Gomez-Olmedo, Ana M. & Funes, Andrés Gómez, 2024. "Why do people choose to continue using cryptocurrencies?," Technological Forecasting and Social Change, Elsevier, vol. 200(C).

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    More about this item

    Keywords

    Central Bank Digital Currencies; Digital innovation; Cryptocurrencies;
    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
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

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