Assessing the Impact of Central Bank Digital Currency on Private Banks

David Andolfatto ()

The Economic Journal, 2021, vol. 131, issue 634, 525-540

Abstract: This paper investigates how a central bank digital currency can be expected to impact a monopolistic banking sector. The paper’s framework of analysis combines the Diamond (1965) model of government debt with the Klein (1971) and Monti (1972) model of a monopoly bank. The paper finds that the introduction of a central bank digital currency has no detrimental effect on bank lending activity and may, in some circumstances, even serve to promote it. Competitive pressure leads to a higher monopoly deposit rate which reduces profit but expands deposit funding through greater financial inclusion and desired saving. An appeal to available theory and evidence suggests that a properly designed central bank digital currency is not likely to threaten financial stability.

Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (111)

Downloads: (external link)
http://hdl.handle.net/10.1093/ej/ueaa073 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Assessing the Impact of Central Bank Digital Currency on Private Banks (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:econjl:v:131:y:2021:i:634:p:525-540.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Economic Journal is currently edited by Francesco Lippi

More articles in The Economic Journal from Royal Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press () and ().