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Digital Money as a Medium of Exchange and Monetary Policy in Open Economies

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  • Daisuke Ikeda

    (Director and Senior Economist, Institute for Monetary and Economic Studies (currently, Financial System and Bank Examination Department), Bank of Japan (E-mail: daisuke.ikeda@boj.or.jp))

Abstract

The rise of digital money may bring about privately issued money that circulates across borders and coexists with public money. This paper uses an open-economy search model with multiple currencies to study the impact of such global money on monetary policy autonomy -- the capacity of central banks to set a policy instrument. I show that the circulation of global money can entail a loss of monetary policy autonomy, but it can be preserved if government policy that limits the amount or use of global money for transactions is introduced or if the global currency is subject to counterfeiting. The result suggests that global digital money and monetary policy autonomy can be compatible.

Suggested Citation

  • Daisuke Ikeda, 2022. "Digital Money as a Medium of Exchange and Monetary Policy in Open Economies," IMES Discussion Paper Series 22-E-10, Institute for Monetary and Economic Studies, Bank of Japan.
    • Handle: RePEc:ime:imedps:22-e-10
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    References listed on IDEAS

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    Cited by:

    1. Takuji Fueki & Yutaka Soejima & Shunichi Yoneyama, 2022. "New Dimensions and Frontiers in Central Banking Summary of the 2022 BOJ-IMES Conference," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 40, pages 1-20, November.
    2. Takuji Fueki & Yutaka Soejima & Shunichi Yoneyama, 2022. "New Dimensions and Frontiers in Central Banking Summary of the 2022 BOJ-IMES Conference," IMES Discussion Paper Series 22-E-13, Institute for Monetary and Economic Studies, Bank of Japan.

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    More about this item

    Keywords

    Cryptocurrency; Monetary policy autonomy; Currency counterfeiting; Government transaction policy;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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