Between Cash, Deposit and Bitcoin: Would We Like a Central Bank Digital Currency? Money Demand and Experimental Economics

25 Pages Posted: 12 Apr 2018

See all articles by Emanuele Borgonovo

Emanuele Borgonovo

Bocconi University - Department of Decision Sciences

Alessandra Cillo

LIUC Cattaneo University

Stefano Caselli

Bocconi University - Department of Finance

Donato Masciandaro

Bocconi University - Department of Economics; Bocconi University - Department of Economics (ECO)

Date Written: April 1, 2018

Abstract

The aim of this paper is to analyse the demand of a central bank digital currency (CBDC). Using a financial portfolio approach and assuming that individual preferences and policy votes are consistent, we identify the drivers of the political consensus in favour or against such as new currency. Given three different properties of a currency – where the first two are the standard functions of medium of exchange and store of value and the third one is the less explored function of store of information – and three different existing moneys – paper currency, banking currency and cryptocurrency – if the individuals are rational but at the same time can be affected by behavioural biases – loss aversion - three different groups of individuals – respectively lovers, neutrals and haters – emerge respect to the CBDC option. Given the alternative opportunity costs of the different currencies, the CBDC issuing is more likely to occur the more the individuals likes to use a legal tender, and/or are indifferent respect to anonymity; at the same time, the probability of the CBDC introduction increases if a return can be paid on it, and/or its implementation can guarantee at least the counterparty anonymity.

Keywords: Central Bank Digital Currencies, Cash, Bitcoin, Cryptocurrencies

JEL Classification: B22, D72, E41, E42, E52, E58, G38, G41, K42

Suggested Citation

Borgonovo, Emanuele and Cillo, Alessandra and Caselli, Stefano and Masciandaro, Donato, Between Cash, Deposit and Bitcoin: Would We Like a Central Bank Digital Currency? Money Demand and Experimental Economics (April 1, 2018). BAFFI CAREFIN Centre Research Paper No. 2018-75, Available at SSRN: https://ssrn.com/abstract=3160752 or http://dx.doi.org/10.2139/ssrn.3160752

Emanuele Borgonovo

Bocconi University - Department of Decision Sciences ( email )

Via Roentgen 1
Milan, 20136
Italy

Alessandra Cillo

LIUC Cattaneo University ( email )

Castellanza
Italy

Stefano Caselli

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Donato Masciandaro (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

Bocconi University - Department of Economics (ECO) ( email )

Via Gobbi 5
Milan, 20136
Italy

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