CBDC and the Banking System

Auer Simone, Branzoli Nicola, Giuseppe Ferrero, Ilari Antonio, Palazzo Francesco and Rainone Edoardo
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Auer Simone: Directorate General for Economics, Statistics and Research – Economic Outlook and Monetary Policy Directorate, 5099 Bank of Italy , Roma, Italy
Branzoli Nicola: Directorate General for Economics, Statistics and Research – Financial Stability Directorate, 5099 Bank of Italy , Roma, Italy
Ilari Antonio: AML Supervision and Regulation Unit, 5099 Bank of Italy , Roma, Italy
Palazzo Francesco: Directorate General for Economics, Statistics and Research – Financial Stability Directorate, 5099 Bank of Italy , Roma, Italy
Rainone Edoardo: Directorate General for Economics, Statistics and Research – Financial Stability Directorate, 5099 Bank of Italy , Roma, Italy

Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), 2025, vol. 245, issue 4-5, 435-478

Abstract: This paper examines the potential impact a central bank digital currency (CBDC) on banks’ balance sheets. We first analyze the possible implications of the introduction of a CBDC for the banking system and the economy as a whole. Our analysis indicates that the impact of a CBDC depends on a number of design choices and on how credit institutions re-optimize their balance sheets in response to the outflow of deposits caused by the substitution of private money with public digital money. We then present a series of illustrative simulations on the impact of a CBDC on the funding structure and profitability of credit institutions using data on Italian banks between June 2021 and March 2023. The analysis suggests that the overall impact on banks’ funding could be manageable in the presence of individual holding limits and in an environment characterized by ample liquidity and stable funding for credit institutions. The cost of covering the reduction of deposits would be relatively higher for intermediaries with low excess reserves and for those that may need to issue long-term liabilities to maintain stable funding levels above regulatory requirements.

Keywords: central bank digital currency; monetary policy; financial stability; banks; money (search for similar items in EconPapers)
JEL-codes: E41 E42 E43 E44 E51 E58 G21 (search for similar items in EconPapers)
Date: 2025
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Working Paper: CBDC and the banking system (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:jns:jbstat:v:245:y:2025:i:4-5:p:435-478:n:1003

DOI: 10.1515/jbnst-2024-0006

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