Impact of Retail CBDC on Digital Payments, and Bank Deposits: Evidence from India

Marco Di Maggio, Pulak Ghosh, Soumya Kanti Ghosh and Andrew Wu

No 32457, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Interest in central bank digital currencies (CBDCs) has been burgeoning with 134 countries now exploring its implementation. In December 2022, India started its CBDC pilot program to continue its transition towards a digitized payments economy. This paper presents the first empirical analysis utilizing detailed transaction data to explore the dynamics between CBDCs and existing digital payment methods, as well as the implications of increased CBDC usage on traditional bank deposits. Our findings reveal that policies which increase transaction costs for current digital payment methods catalyze a substitution effect, bolstering CBDC adoption. Furthermore, an uptick in CBDC usage is associated with a notable decline in bank, cash, and savings deposits, suggesting potential paths to bank disintermediation. This study contributes critical insights into the evolving competition between digital currencies and established financial infrastructures, highlighting the transformative potential of CBDCs on the broader economy.

JEL-codes: E42 G21 G38 G51 (search for similar items in EconPapers)
Date: 2024-05
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-mon and nep-pay
Note: CF ME
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