Credibility of central banks in monetary economies

This paper develops a model of money to study interventions by a central bank that can monitor the money holdings of agents. I show that an off-the-equilibrium intervention enhances the use of money and stabilizes its values. • With CBDC, the central bank can monitor the money holdings of agents. • The central bank intervenes only off the equilibrium. • With an appropriate intervention, there exists a unique equilibrium. • In this equilibrium, the value of money is positive and constant over time.