Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/197915
Authors: 
Zhu, Yu
Hendry, Scott
Year of Publication: 
2019
Series/Report no.: 
Bank of Canada Staff Working Paper 2019-1
Abstract: 
This paper considers an economy where central-bank-issued fiat money competes with privately issued e-money. We study a policy-setting game between the central bank and the e-money issuer and find (1) the optimal monetary policy of the central bank depends on the policy of the private issuer and may deviate from the Friedman rule; (2) there may exist multiple equilibria; (3) when the economy approaches a cashless state, the central bank's optimal policy improves the market power of the e-money issuer and can lead to a discrete decrease in welfare and a discrete increase in inflation; and (4) first best cannot be achieved. Central-bank-issued e-money leads to a simple optimal policy that achieves the first best.
Subjects: 
Digital currencies
Monetary policy
JEL: 
E52
Document Type: 
Working Paper
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