New Paper: Digital cash, the conduct of monetary policy and the monetary transmission mechanism

I have a new paper out at Center for Corporate Governance at Copenhagen Business School.

Here is the abstract:

More and more central banks around the world are seriously considering introducing so-called Central Bank Digital Currencies (CBDC).

In this paper we discuss the implications of introducing digit cash for the conduct of monetary policy and the monetary transmission mechanism.

It is concluded that the introduction of digital cash will not necessitate a fundamental change in monetary policy operations, but it might nonetheless open the door for policy innovations.

The introduction of digital cash will, however, impact – potentially significantly – the size of the money multiplier and might increase the effective lower bound on interest rates.

Both factors will cause an initial tightening of monetary conditions. However, such tightening can and should be offset by a strict commitment to monetary policy rules and through measures to ease legal requirements for liquidity, capital and reserves.

Read the paper here.

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