Time: 2022/12/6(Tue.), 9:00 – 10:30 am (Beijing Time)

Title: Central Bank Digital Currency and Banking: Macroeconomic Benefits of a Cash-like Design

About the Speaker:

Currently a Research Advisor at the Bank of Canada, Mohammad Davoodalhosseini joined the Bank as a Senior Economist in 2015 after he received his Ph.D. in Economics from the Pennsylvania State University. Prior to that, he received his B.Sc. in Electrical Engineering and M.Sc. in Economics from Sharif University of Technology, Iran, in 2007 and 2009, respectively.

His research interests can be classified into two broad categories: monetary economics and search theory. On monetary economics, he studies new developments in the field of electronic money and payments and explores how introducing a central bank digital currency (CBDC) can affect the implementation and transmission of monetary policy as well as the efficiency and stability of financial system. On search theory, he has explored the role of information asymmetries in markets with search frictions, with applications to inter-bank, labor and over-the-counter markets. His work has been published in (or accepted by) academic journals such as Journal of Political Economy, Journal of Economic Theory, International Economic Review, and Journal of Economic Dynamics and Control.

Abstract：

Many central banks are considering issuing a central bank digital currency (CBDC). How will the CBDC affect the macroeconomy? Will its design matter? To answer these questions, we theoretically and quantitatively assess the effects of a CBDC on consumption, banking and welfare. Our model captures the competition between different means of payments and incorporates a novel general equilibrium feedback effect from transactions to deposits creation. The general equilibrium effects of a CBDC are decomposed into three channels: payment efficiency, price effects and bank funding costs. We show that a cash-like CBDC is more effective than a deposit-like CBDC in promoting consumption and welfare. Interestingly, a cash-like CBDC can also crowd in banking, even in the absence of bank market power. In a calibrated model, at the maximum, a cash-like CBDC can increase bank intermediation by 14.6% and welfare by 8.1 bps and capture up to 24.6% of the payment market.