Monetary policy and banking intermediation in CBDC economy

Abstract

Increased dissemination of information and communication technologies in the economy has led many central bankers around the world to consider the introduction of money in the digital form. In academic literature, various central bank digital currency (CBDC) issues from technical design to political influence are discussed, although until now it has not been fully implemented in any country except the Bahamas. The central bank digital currency (CBDC) is an additional form of national currency that combines the properties of cash and bank accounts. This study mainly aims to provide a comprehensive analysis of monetary policy in the CBDC economy. to meet the aim of the study, the study applies an agent-based model that has six types of economic agents and complicated interaction algorithms. The various design parameters are employed to study the dynamics of endogenous variables. Model simulations suggest that CBDC introduction leads to reduced macroeconomic volatility and price stability. Furthermore, the study provides evidence of the increased efficiency of the interest rate channel of the monetary policy transmission mechanism and the negative consequences of possible banking disintermediation. Based on the results obtained, the study concludes that the CBDC impact the economy through changes in the monetary base, strengthening the structural liquidity deficit, banking disintermediation, and increasing the fiscal policy capabilities. The proposed agent-based model provides a theoretical foundation for the further study of monetary policy and banking intermediation in the CBDC economy.