CBDCs and NIRP : New Tools for Monetary Policy

The last decade has witnessed two groundbreaking developments in monetary economics: The growth in digital private currencies and negative interest rate policies (NIRP), leaving the zero lower bound no longer binding. These developments have introduced two parallel discussions surrounding the viability of widespread adoption of central bank digital currencies (CBDC), in a world that is increasingly digital, and of the effectiveness of NIRP, which is not being properly transmitted by private banks to depositors. We build a framework that suggests that CBDC could be an answer to the latter problem, alleviating the constraint posed by money on banks and recomposing the transmission of monetary policy, while also giving the Central Bank an additional tool for monetary policy