Arbeitspapier

CBDC and financial stability

What is the effect of Central Bank Digital Currency (CBDC) on financial stability? We answer this question by studying a model of financial intermediation with an endogenously determined probability of a bank run, using global games. As an alternative to bank deposits, consumers can also store their wealth in remunerated CBDC issued by the central bank. Consistent with widespread concerns among policymakers, higher CBDC remuneration increases the withdrawal incentives of consumers, and thus bank fragility. However, the bank optimally responds to the additional competition by offering better deposit rates to retain funding, which reduces fragility. Thus, the overall relationship between CBDC remuneration and bank fragility is U-shaped.

ISBN
978-92-899-5525-6
Language
Englisch

Bibliographic citation
Series: ECB Working Paper ; No. 2783

Classification
Wirtschaft
Asymmetric and Private Information; Mechanism Design
Financial Crises
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Subject
Central Bank Digital Currency
Bank Fragility
Demand Deposits
Global Games

Event
Geistige Schöpfung
(who)
Ahnert, Toni
Hoffmann, Peter
Leonello, Agnese
Porcellacchia, Davide
Event
Veröffentlichung
(who)
European Central Bank (ECB)
(where)
Frankfurt a. M.
(when)
2023

DOI
doi:10.2866/671223
Handle
Last update
10.03.2025, 11:42 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Ahnert, Toni
  • Hoffmann, Peter
  • Leonello, Agnese
  • Porcellacchia, Davide
  • European Central Bank (ECB)

Time of origin

  • 2023

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