A study on the Dynamic Issuance Mechanism based on Central Bank Digital Currency1

Abstract

Central Bank Digital Currency (CBDC) pledges to realize a vast array of new functionalities, such as frictionless consumer payment and money-transfer systems, as well as precise supervision of money circulation, thereby enabling a number of new financial instruments and monetary policy levers. This study proposes, from a system feedback loop and cybernetics perspective, a Dynamic Issuance Mechanism (DIM) for CBDC that can theoretically enhance the vitality of economic operations. In accordance with this mechanism, the central bank implements dynamic issuance by monitoring cash leakage in real-time, so as to maintain the stability of the amount of money circulating on the market, thereby boosting the currency turnover rate and financial vitality. To demonstrate the efficacy of the DIM, we employ the Agent-Based Modeling (ABM) tool to develop a macroeconomic simulation model for qualitative analysis that includes four entities: Central Bank, households, firms, and commercial banks. The multi-cycle operation process of the model includes a variety of economic indicators demonstrating that DIM has the potential to boost economic vitality and social production efficiency without exerting an adverse effect on citizens’ incomes, commodity prices, or the stability of the macroeconomic system. Finally, the function principle and potential risks of DIM are explained from a systems perspective, which offers a novel perspective for the functional design of CBDC and highlights that the hierarchical structure is a meaningful domain as the developmental direction.