The effect of Central Bank Digital Currency on central bank monetary policy

Document Type : Original Article

Authors

1 MA. Student in Economics, Economics Department, Imam Sadiq University, Tehran, Iran

2 Associate Prof of Economics, Economics Department, Imam Sadiq University, Tehran, Iran

10.22034/es.2024.395967.1669

Abstract

Maintaining central bank monetary governance against the influx of private cryptocurrencies has led many central banks to issue Central Bank Digital Currency. In this context, however, there are still doubts that the extent of the Central Bank Digital Currency issuance effect on monetary policy can be considered one of the most important.
In the present research, firstly, with a descriptive-analytical approach, based on theoretical studies, the analysis of various aspects of the Central Bank Digital Currency circulation was done. In the continuation of the research, we have selected and classified some main CBDC design approaches and evaluated them using the SWOT matrix. The results of the SWOT matrix indicate the necessity of using an aggressive strategy as the main strategy in issuing CBDC. The results of the QSPM matrix also indicate that the best aggressive sub-strategy to design the digital money of the central bank in a way that has the highest impact on monetary policy; retail Central Bank Digital Currency issuance strategy is account-based and interest bearing.
By issuing this type of CBDC, the central bank will achieve a durable and reliable nominal anchor. In terms of the monetary policy transmission mechanism, the interest rate channel will have the greatest effect. Also, the exchange rate channel of the monetary policy transmission mechanism will only be affected if people outside the country are also allowed to use the CBDC.

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