Monetary Policy Transmission Through Shadow and Traditional Banks

Yuteng Cheng and Ryuichiro Izumi

Staff Working Papers from Bank of Canada

Abstract: We examine the optimal amount of user anonymity in a central bank digital currency (CBDC) in the context of bank lending. Anonymity, defined as the lender’s inability to discern an entrepreneur’s actions that enable fund diversion, influences the choice of payment instrument due to its impact on a bank’s lending decisions. We show that moderate anonymity in CBDC leads to an inefficient pooling equilibrium. To avoid this, CBDC anonymity should be either low, reducing attractiveness, or high, discouraging bank lending. Specifically, the anonymity should be high when CBDC significantly benefits sales, and low otherwise. However, competition between deposits and CBDC may hinder the implementation of low anonymity.

Keywords: Digital; currencies; and; fintech (search for similar items in EconPapers)
JEL-codes: E42 E58 G28 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2024-03
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mon and nep-pay
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