The impact of central bank digital currency on monetary policy effectiveness

The emergence of central bank digital currency (CBDC) is a historic event in the transformation of traditional legal monetary forms. Its issuance and circulation change the existing monetary hierarchy and monetary system. From the perspective that CBDC affects the monetary policy effectiveness, we introduce CBDC, quantity rule, and price rule into the traditional dynamic stochastic general equilibrium model, and propose a new DSGE model including households, manufacturers, the government, and the central bank. The impacts of CBDC on the effectiveness of quantity-based and price-based monetary policies are discussed separately, and three conclusions are drawn. First, the technology shock has better policy effects under the price rule. Second, the response of economic variables to the price rule shock is more significant. Third, the CBDC interest rate shock produces desirable policy effects on economic variables. Based on the above conclusions, we put forward policy suggestions and future research directions.