CBDCs, Financial Inclusion, and Optimal Monetary Policy

This paper studies the interaction between monetary policy and financial inclusion with the introduction of a central bank digital currency (CBDC). Using a New Keynesian two-agent framework with banked and unbanked households, we demonstrate that CBDCs can enhance welfare for the unbanked by serving as an efficient savings tool. A Ramsey optimal policy exercise shows that the CBDC rate typically maintains a constant spread relative to the policy rate. However, a trade-off emerges, as a higher CBDC rate benefits the unbanked but reduces welfare for banked households due to tax redistribution. These findings emphasise the importance of tailoring CBDC design to an economy's level of financial inclusion.