Defaultable debt

From ACT Wiki
Jump to navigationJump to search

Central bank digital currency (CBDC) - government debt - default.

In the context of central bank digital currencies (CBDCs), defaultable debt refers to conventional government debt.

Conventional government debt, the argument goes, is a liability of the government that carries the possibility of default.

By contrast, a CBDC is not defaultable.

CBDC can reduce government financing costs
"CBDC issuance against government debt can reduce government financing costs in two ways.

First, by increasing the share of financing that pays the lower interest rate on CBDC.

And second, by reducing the outstanding stock of defaultable government debt and thereby reducing all equilibrium interest rates...
As argued by Kumhof et al. (2020), government debt is defaultable and is therefore a liability of the government, while CBDC is not defaultable and is not a liability of the government but rather a hybrid instrument that is closer to equity (in the nation) rather than debt."
CBDC policies in open economies - BIS Working Paper No 1086 - April 2023 - p24..

See also

Other resource