Public money as a store of value, heterogeneous beliefs and banks: Implications of CBDC

Arbeitspapier

The bulk of cash is held for store of value purposes, with such holdings sharply increasing in times of high economic uncertainty and only a fraction of the population choosing to hoard cash. We develop a Diamond and Dybvig model with public money as a store of value and heterogeneous beliefs about bank stability that accounts for this evidence. Only consumers who are sufficiently pessimistic about bank stability hold cash. The introduction of a central bank digital currency (CBDC) as a store of value lowers the storage cost of public money and induces partial bank disintermediation, which is nevertheless mitigated by an increase in relative maturity transformation. This has heterogeneous welfare consequences across the population. While cash holders always benefit by switching to CBDC, each of all other consumers may be better off or not depending on the probability of a bank run, her (and all others') belief about such probability and the degree of technological superiority of CBDC.

Object Details

• ISBN: 978-92-9472-358-1
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ESRB Working Paper Series ; No. 146

Classification and Topics

• Classification: Wirtschaft ; Demand for Money ; Central Banks and Their Policies ; Portfolio Choice; Investment Decisions ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages
• Subject: Cash hoarding ; central bank digital currency ; disagreement ; uncertainty shocks ; flight-to-safety ; bank stability ; welfare

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Muñoz, Manuel A. ; Soons, Oscar
• Event: Veröffentlichung
• (who): European Systemic Risk Board (ESRB), European System of Financial Supervision
• (where): Frankfurt a. M.
• (when): 2024

Further information

• DOI: doi:10.2849/043143
• Handle: http://hdl.handle.net/10419/283547
• Last update: 10.03.2025, 11:41 AM CET