Effects of Digital Rial Design on Iran’s Macroeconomic Variables

Abstract

With the expansion of digital financial technologies, the issuance of the Digital Rial as a new form of central bank money has created new challenges and opportunities for monetary policy. The present study aims to investigate the effects of the issuance and design of the Digital Rial on the country’s macroeconomic variables, including inflation, the output gap, and the policy interest rate. To analyze these effects, a Dynamic Stochastic General Equilibrium (DSGE) model with heterogeneous households is developed, in which the Digital Rial is modeled endogenously under two alternative regimes: non-interest-bearing and interest-bearing. The calibrated model is solved for the 2011–2024 period, and four policy scenarios are compared using dynamic model simulations, including the baseline scenario, the widespread non-interest-bearing Digital Rial issuance scenario, the interest-bearing and managed Digital Rial scenario, and the rapid and high-risk adoption scenario. The simulation results indicate that, in the baseline scenario, the Digital Rial functions solely as a payment instrument. The widespread issuance of a non-interest-bearing Digital Rial reduces the effectiveness of monetary policy by weakening the sensitivity of money demand to the interest rate and consequently increases fluctuations in inflation and the output gap. In contrast, the design of an interest-bearing and managed Digital Rial strengthens the interest rate transmission channel, contributes to macroeconomic stabilization, and improves the performance of the Taylor rule.