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Monetary Policy Strategy In The Presence Of Central Bank Digital Currency

Author

Listed:
  • Ferry Syarifuddin

    (Bank Indonesia)

  • Toni Bakhtiar

Abstract

With their various motivations, many central banks still develop CBDC to explore its potentials and the drawback of implementation. This research examines the macroeconomic and monetary policy consequences, then determine optimal CBDC design to support monetary policy strategy. First, this research wants to develop DSGE model to quantify macroeconomic and monetary policy consequences in implementing CBDC. The DSGE model is consist of seven sectors namely households, retail firms, wholesale firms, capital producing firms, banks, central bank, and government. Shock generator that used in this model is technology shock and the shock on Taylor rule of interest rate. Second, as we know the outcome of the consequences, we continue to determine optimal CBDC design using SWOT with purposive sampling meta-analysis approach and its implementation strategies. According to the simulation, CBDC could effectively maintain inflation through CBDC rate. Meanwhile, optimal CBDC design that could support monetary policy is retail and wholesale coverage, interest bearing (wholesale) and non-interest bearing (retail) remuneration, account-based and tokenbased payment system, traceable degree of anonymity, hybrid architecture, DLT ledger system, and domestic and cross-border scope.

Suggested Citation

  • Ferry Syarifuddin & Toni Bakhtiar, 2021. "Monetary Policy Strategy In The Presence Of Central Bank Digital Currency," Working Papers WP/09/2021, Bank Indonesia.
    • Handle: RePEc:idn:wpaper:wp092021
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    Cited by:

    1. Danny Hermawan & Denny Lie & Aryo Sasongko & Richard I. Yusan, 2023. "Money velocity, digital currency, and inflation dynamics," Working Papers 2023-01, University of Sydney, School of Economics.
    2. Danny Hermawan Adiwibowo & Aryo Sasongko & Denny Lie, 2022. "Money Velocity, Digital Currency, And Inflation Dynamics," Working Papers WP/13/2022, Bank Indonesia.
    3. Solikin M. Juhro & Denny Lie & Atet Rizki Wijoseno & Mohammad Aly Fikry, 2022. "Fiscal Policy Stance, Central Bank Digital Currency, And The Optimal Monetary-Macroprudential Policy Mix," Working Papers WP/01/2022, Bank Indonesia.

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    More about this item

    Keywords

    CBDC; Optimal design; DSGE; SWOT; Monetary policy;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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