CBDC: Banking and Anonymity

Yuteng Cheng () and Ryuichiro Izumi
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Yuteng Cheng: Bank of Canada

No 2023-002, Wesleyan Economics Working Papers from Wesleyan University, Department of Economics

Abstract: What is the optimal design of anonymity in a central bank digital currency (CBDC)? We examine this question in the context of bank lending by building a stylized model of anonymity in payment instruments. We specify the anonymity of payment instruments in two dimensions: The bank has no information about the entrepreneur’s investment, and the bank has less control over the entrepreneur’s profits. An instrument with higher anonymity may discourage the bank from lending, and thus, the entrepreneur strategically chooses payment instruments. Our analysis shows that introducing a CBDC with modest anonymity can improve welfare in one equilibrium, but can also destroy valuable information in bank lending, leading to inefficient lending in another equilibrium. Our results suggest that central banks should either make a CBDC highly anonymous or share CBDC data with banks to eliminate this bad equilibrium.

Keywords: CBDC; Anonymity; Bank lending (search for similar items in EconPapers)
JEL-codes: E42 E58 G28 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2023-01
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-fmk, nep-gth, nep-mon and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:wes:weswpa:2023-002

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