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The role of central bank digital currency in an increasingly digital economy

Author

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  • Hemingway, Benjamin

    (Bank of England)

Abstract

The introduction of an unremunerated retail central bank digital currency (CBDC) is currently under consideration by several central banks. Motivated by the decline in transactional cash usage and the increase in online sales in the UK, this paper provides a theoretical framework to study the underlying drivers of these trends and the welfare implications of introducing an unremunerated retail CBDC. I develop a cash credit model with physical and digital retail sectors, endogenous entry of firms and directed consumer search. Calibrating to UK data between 2010 and 2022 the model suggests that there are positive welfare gains from introducing an unremunerated retail CBDC, but these have likely declined over time.

Suggested Citation

  • Hemingway, Benjamin, 2024. "The role of central bank digital currency in an increasingly digital economy," Bank of England working papers 1101, Bank of England.
    • Handle: RePEc:boe:boeewp:1101
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    File URL: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2024/the-role-of-cbdc-in-an-increasingly-digital-economy.pdf
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    More about this item

    Keywords

    CBDC; credit; digital currency; money;
    All these keywords.

    JEL classification:

    • 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
    • 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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