A Few Things You Wanted to Know about the Economics of CBDCs, but were Afraid to Model: a survey of what we can learn from who has done

To mistarget and to mistime the issuance of a Central Bank Digital Currency (CBDC) can be detrimental to welfare. This holds even for tentative experiments under controlled conditions since this may prompt unintended expectations by economic agents. To counteract the uncertainty that is inherent in any innovation, academics and central bank researchers have been active in developing models of a prospective economy, or at least of prospective markets, where a fiat currency in digital form coexists. Irrespective of whether such a proposal entails a positive or negative stance, we contend that it is possible to infer from this body of work: opportunities, risks, and policy guidelines they imply (or fail to address). This paper, therefore, is a survey of this model development activity that, we aim to show, results in a better understanding of the economic implications of a CBDC. For this purpose, we have selected and reviewed twenty-nine proposals. I have classified them with respect to motivations, preoccupations, and foundations, observing what they conclude regarding the potential for coexistence with private alternatives and for harm to policy mandates. I have identified knowns, i.e., what models imply, and unknowns, i.e., what models omit or oversimplify. I have found that our analysis can give focus to further research that can steer the ongoing legal and technical design efforts.