Central Bank Digital Currency in Brazil
De Mello, Joao Manoel Pinho; Kanczuk-Alfaro, Isabella
Year: 2022 Volume: 72 Issue: 3 Pages: 242-264
Abstract: We calibrate to the Brazilian economy a model of means of payment choice, where households have different preferences over anonymity. The financial sector is monopolistically competitive and may break the link between borrowing and lending rates. A sufficiently attractive digital currency reduces holdings of both cash and bank deposits. Since cash use is costly, digital currency may increase welfare. However, if banks are liquidity constrained, the digital currency may result in fewer loans and output and reduce welfare. The digital currency interest remuneration can be set and adjusted over time to balance this trade-off optimally.
JEL classification: E41, E58, G21
Keywords: digital currency, central bank, financial intermediation
DOI: https://doi.org/10.32065/CJEF.2022.03.03
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