Central Bank Digital Currency: Central Banking For All?

Jesus Fernandez-Villaverde, Daniel Sanches, Linda Schilling and Harald Uhlig ()

No 26753, NBER Working Papers from National Bureau of Economic Research, Inc

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 intermediaries 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. During 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 endangered maturity transformation.

JEL-codes: E58 G21 (search for similar items in EconPapers)
Date: 2020-02
New Economics Papers: this item is included in nep-ban, nep-mac, nep-mon and nep-pay
Note: EFG
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Citations: View citations in EconPapers (55)

Published as Jesús Fernández-Villaverde & Daniel Sanches & Linda Schilling & Harald Uhlig, 2021. "Central bank digital currency: Central banking for all?," Review of Economic Dynamics, vol 41, pages 225-242.

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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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