Will central bank digital currency disintermediate banks?

Arbeitspapier

We estimate a dynamic banking model to quantify the impact of a central bank digital currency (CBDC) on the banking system. Our counterfactuals show that a one-dollar introduction of CBDC replaces bank deposits by around 80 cents on the margin. Bank lending falls by one-fourth of the drop in deposits because banks partially replace lost deposits with wholesale funding. This substitution raises banks' interest-rate risk exposure and lowers their resilience to negative equity shocks. If CBDC bears interest or is intermediated through banks, it captures a greater deposit market share, amplifying the impact on lending. The effect on lending is amplified for small banks, for which wholesale funding is more expensive.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IHS Working Paper ; No. 47

Classification and Topics

• Classification: Wirtschaft ; Money Supply; Credit; Money Multipliers ; Monetary Policy ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Institutions and Services: Government Policy and Regulation
• Subject: central bank digital currency ; banking competition ; maturity mismatch,financial stability

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Whited, Toni Marion ; Wu, Yufeng ; Xiao, Kairong
• Event: Veröffentlichung
• (who): Institut für Höhere Studien - Institute for Advanced Studies (IHS)
• (where): Vienna
• (when): 2023

Further information

• Handle: http://hdl.handle.net/10419/273785
• Last update: 10.03.2025, 11:44 AM CET