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Sovereign Digital currency, its Benefits and Risks for Commercial Banks: Central Bank Digital Currency case study
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Maysam Nasrindoost *   |
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Abstract: (665 Views) |
As a result of changing needs and especially three recent developments (the financial crisis of 2007-2008, IT developments and Covid pandemic), the monetary system of world’s countries have been changed, so that idea of Central Bank Digital Currency (CBDC) has been proposed todays. Since the issuance of CBDC appears on the central bank’s balance sheet, the question was raised whether its issuance can affect the effectiveness of monetary policy in controlling inflation? Also, can the release of such currency increase the compliance risk in banks? To answer the first question, a dynamic stochastic general equilibrium (DSGE) model was designed in which the central bank tries to control inflation by changing the growth rate of money supply. Then, changes in the performance of monetary policy in controlling inflation were compared with and without CBDC issuance. The result showed that in response to the inflationary impulse, the increase in money supply and inflation is significantly less, in the presence of CBDC. In other words, with the presence of CBDC, the central bank has more ability to control inflation. Also, to answer the second question, the nature and characteristics of different types of CBDCs were examined and finally the implementation of CBDC with special features of liquidity services and elasticity of substitution was proposed as a policy recommendation of this paper. From a compliance risk perspective, virtual CBDC in a token-based model may be better for commercial banks while having positive features for controlling inflation.
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Full-Text [PDF 1279 kb]
(197 Downloads)
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Type of Study: Case Study |
Subject:
Monetary Policy, Central Banking, and the Supply of Money and Credit (E5)
Received: 2025/02/1 | Accepted: 2025/08/12 | Published: 2026/06/23
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