Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/251030 
Authors: 
Year of Publication: 
2021
Series/Report no.: 
Bank of Canada Staff Discussion Paper No. 2021-17
Publisher: 
Bank of Canada, Ottawa
Abstract: 
As currently articulated, the monetary sovereignty argument for central bank digital currencies (CBDCs) rests on the idea that without them, private and foreign digital monies could displace domestic currencies (a process called currency substitution), threatening the central bank's monetary policy and lender-of-last-resort (LLR) capabilities. This rationale provides a crucial but incomplete picture of what is at stake in terms of monetary sovereignty. This paper seeks to expand and enhance this picture in three ways. The first is by looking at the consequences of currency substitution that go beyond the functions of a central bank-important considerations that have received less attention in public CBDC discussions. The second is by exploring key differences in monetary policy and LLR capabilities across currency-issuing countries or regions. More specifically, the paper highlights the variation in the degree of monetary sovereignty and the consequences that different countries face should they lose it. The third way is by assessing not only the implications but also the risks of currency substitution and showing how these are also likely to vary across countries. Contrasting the consequences and risks of substitution, the paper concludes by noting a potential inverse relationship between the impact and probability of losing monetary sovereignty.
Subjects: 
Digital currencies and fintech
Monetary policy
Financial stability
Exchange rateregimes
Debt management
JEL: 
E41
E42
E52
E58
H12
H63
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size
477.25 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.