"Multi-Currency DSGE Model: Interactions between Fiat, CBDC and Cryptocurrency under Banking and Bubble Constraints" by Ardit Koka

Topic

In a rapidly evolving and dynamic research area, where digital currencies are reshaping the global financial system, this paper dares to push the boundaries by tackling a question that has yet to be fully explored. We develop a novel two-country New Keynesian DSGE model that integrates fiat money, central bank digital currency (CBDC), and cryptocurrency within a unified macro-financial framework. The model features representative agents, speculative bubbles in cryptocurrency prices modelled à la Galí (2021), and a regulated banking sector subject to liquidity and capital requirements. CBDC is issued by the home country and can be held cross-border, introducing asymmetries in monetary policy transmission. Banks use crypto assets as collateral, which links speculative dynamics to credit conditions and financial stability. Households derive liquidity services from multiple currencies and rebalance portfolios in response to policy shocks and yield differentials. The framework captures how CBDC issuance affects reserve demand, portfolio substitution, and cross-border monetary spillovers in the presence of endogenous asset price volatility. This structure provides new insights into welfar