Study On The Effectiveness Of Dual Pillar Policy Regulation Under The Situation Of Issuing Central Bank Legal Digital Currency

With the rapid development of fintech based on emerging frontier technologies such as artificial intelligence,blockchain and big data,the payment methods of currency are constantly innovated,and the legal digital currency of central bank emerges at the historic moment.The report of the 19 th National Congress of China clearly put forward the "sound two-pillar regulation framework".The issue of the central bank’s fiat digital currency can further affect the effect of monetary policies and macro-prudential policies by influencing the liquidity demand.Under these two conditions,it has certain theoretical and practical significance to study the influence of the central bank’s fiat digital currency on the effectiveness of the two-pillar policy regulation.This paper first introduces the definition,operation mechanism and development status of the central bank’s legal digital currency,and briefly expounds the issue and circulation status of the central bank’s legal digital currency.Then it analyzes the theoretical mechanism of the central bank’s legal digital currency’s impact on the two-pillar policy from the perspectives of policy objectives,policy tools and transmission mechanism.On the basis of the above,it comprehensively analyzes the influence of the central bank’s fiat digital currency on the effectiveness of the two-pillar policy regulation.The conclusion is that the interest bearing characteristics of the central bank’s fiat digital currency itself and the issuance setting strengthen the necessity of the two-pillar policy regulation.In addition,from the perspective of economic cycle and transmission channel,Under the condition of the issuance of legal digital currency by the central bank,the combination of monetary policy and macro-prudential policy can better regulate the economy,maintain price stability,and prevent the occurrence and accumulation of financial risks.Based on the above analysis,this paper constructs a dynamic stochastic general equilibrium(DSGE)model including households,manufacturers,entrepreneurs,commercial banks,central banks and government departments,and subdivides it into four scenarios according to different issuing mechanisms of the central bank’s legal digital currency.By collecting relevant macroeconomic data,With the help of Matlab software impulse response analysis and variance decomposition.The empirical results show that: First,when faced with the impact of positive monetary policy interest rate,the issuance of the central bank’s fiat digital currency reduces the total output and consumption,and its amplification and acceleration effect on inflation makes the price level always change positively.However,the central bank’s fiat digital currency alleviates the information asymmetry in the market to a large extent,making the implementation effect of the policy more sensitive to the interest rate.Enhance the effectiveness of the two-pillar policy regulation;Second,when faced with the impact of positive production technology,the change trend of total output and investment under the four situations is basically the same,but the fluctuation range of investment under the situation involving the legal digital currency is larger,which promotes the growth of consumption in the long run and enables the price level to return to the stable level at a faster speed,which is conducive to calming economic fluctuations and smoothing the transmission channel of interest rate.Better leverage the coordination role of monetary policy and macro-prudential policy;Third,when faced with positive macro-prudential policy impact,the issuance of the central bank’s fiat digital currency reduced the fluctuation range of the total output and that of deposits and investment,thus strengthening the effect of capital-type macro-prudential policy tools,conducive to the smooth operation of the economy,and generally enhanced the effectiveness of the two-pillar policy control.The coordination effect of the two major policies can bring positive influence.Finally,this paper puts forward corresponding policy suggestions on the establishment of the issuing mechanism of the central bank’s legal digital currency,strengthening policy communication and coordination,carrying out international financial cooperation,and establishing and improving laws and regulations.