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Central Bank Digital Currency: Motivations and Implications

Author

Listed:
  • Walter Engert
  • Ben Fung

Abstract

The emergence of digital currencies such as Bitcoin and the underlying blockchain and distribution ledger technology have attracted significant attention. These developments have raised the possibility of considerable impacts on the financial system and perhaps the wider economy. This paper addresses the question of whether a central bank should issue digital currency that could be used by the general public. It begins by discussing the possible motivations for a central bank to issue a digital currency. The paper then sets out a benchmark central bank digital currency (CBDC) with features that are similar to cash. The implications of such a digital currency are explored, focusing on central bank seigniorage, monetary policy, the banking system and financial stability, and payments. Finally, a CBDC that differs from the benchmark digital currency in a significant way is considered.

Suggested Citation

  • Walter Engert & Ben Fung, 2017. "Central Bank Digital Currency: Motivations and Implications," Discussion Papers 17-16, Bank of Canada.
    • Handle: RePEc:bca:bocadp:17-16
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    References listed on IDEAS

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    More about this item

    Keywords

    Bank notes; Digital Currencies; Financial services; Payment clearing and settlement systems;
    All these keywords.

    JEL classification:

    • E - Macroeconomics and Monetary Economics
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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