Monetary Policy with Reserves and CBDC: Optimality, Equivalence, and Politics∗
We analyze policy in a two-tiered monetary system. Noncompetitive banks issue deposits while the central bank issues reserves and a retail CBDC. Monies differ with respect to operating costs and liquidity. We map the framework into a baseline business cycle model with “pseudo wedges” and derive optimal policy rules: Spreads satisfy modified Friedman rules and deposits must be taxed or subsidized. We generalize the Brunnermeier and Niepelt (2019) result on the macro irrelevance of CBDC but show that a deposit based payment system requires higher taxes. The model implies annual implicit subsidies to U.S. banks of up to 0.8 percent of GDP during the period 1999–2017.
JEL codes: E42, E43, E51, E52
Keywords: Reserves, deposits, central bank digital currency, monetary policy, Friedman rule, equivalence, Ramsey policy, bank profits, money creation
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