We develop a quantitative New Keynesian DSGE model with monopolistic banks to study the macroeconomic effects of introducing a central bank digital currency (CBDC). Households benefit from an expansion of liquidity services and higher deposit rates as bank deposit market power is curtailed, while bank profits and lending decline. We quantify this trade-off across economies that differ in their level of interest rates. We find substantial welfare gains from introducing a CBDC with an optimal rate that can be approximated by a simple rule of thumb: the maximum of 0% and the policy rate minus 1%.
Suggested citation:
Paul, Pascal, Mauricio Ulate, and Jing Cynthia Wu. 2025. “A Macroeconomic Model of Central Bank Digital Currency.” Federal Reserve Bank of San Francisco Working Paper 2024-11. https://doi.org/10.24148/wp2024-11