Central Bank Digital Currency: Central Banking for All?

Jesus Fernandez-Villaverde, Daniel Sanches and Harald Uhlig (huhlig@uchicago.edu)
Authors registered in the RePEc Author Service: Linda Schilling

No 20-19, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: The introduction of a central bank digital currency (CBDC) allows the central bank to engage in large-scale intermediation by competing with private financial interme-diaries for deposits. Yet, since a central bank is not an investment expert, it cannot invest in long-term projects itself, but relies on investment banks to do so. We derive an equivalence result that shows that absent a banking panic, the set of allocations achieved with private financial intermediation will also be achieved with a CBDC. Dur-ing a panic, however, we show that the rigidity of the central bank’s contract with the investment banks has the capacity to deter runs. Thus, the central bank is more stable than the commercial banking sector. Depositors internalize this feature ex-ante, and the central bank arises as a deposit monopolist, attracting all deposits away from the commercial banking sector. This monopoly might endanger maturity transformation.

Keywords: central bank digital currency; central banking; intermediation; maturity transformation; bank runs; lenders of last resort (search for similar items in EconPapers)
JEL-codes: E58 G21 (search for similar items in EconPapers)
Pages: 34
Date: 2020-06-01
New Economics Papers: this item is included in nep-mac, nep-mon and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35)

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Related works:
Journal Article: Central Bank Digital Currency: Central Banking For All? (2021)
Working Paper: Central Bank Digital Currency: Central Banking For All? (2020)
Working Paper: Central Bank Digital Currency: Central Banking For All? (2020)
Working Paper: Central Bank Digital Currency: Central Banking For All? (2020)
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DOI: 10.21799/frbp.wp.2020.19

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