Informal economy and central bank digital currency

Ey Oh, Shuonan Zhang*

*Corresponding author for this work

    Research output: Contribution to journalArticlepeer-review

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    Abstract

    This paper explores the association between the informal economy and the adoption of central bank digital currency (CBDC) by end users, namely households and businesses. Our findings suggest that CBDC may not be widely accepted by end users in the presence of a sizable informal economy in which cash is the primary method of payment. CBDC can decrease informality, but this effect becomes weaker in countries with larger informal economies. Tax reduction and CBDC interest rates can be useful tools to promote the adoption and effectiveness of CBDC, leading to a reallocation effect between formal and informal sectors.
    Original languageEnglish
    Number of pages20
    JournalEconomic Inquiry
    Early online date23 Jun 2022
    DOIs
    Publication statusEarly online - 23 Jun 2022

    Keywords

    • central bank digital currency
    • DSGE
    • informal economy

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