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CBDC as Imperfect Substitute for Bank Deposits: A Macroeconomic Perspective

Philippe Bacchetta and Elena Perazzi
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Elena Perazzi: Ecole Polytechnique Fédérale de Lausanne

No 21-81, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: The impact of Central Bank Digital Currency (CBDC) is analyzed in a small open economy model with monopolistic competition in banking and where CBDC is an imperfect substitute with bank deposits. The design of CBDC is characterized by its interest rate, its substitutability with bank deposits, and its relative liquidity. We examine how interest-bearing CBDC would affect the banking sector, public finance, GDP and welfare. Welfare may improve through three channels: seigniorage; a lower opportunity cost of money; and a redistribution away from bank owners. In our numerical analysis we find a maximum welfare improvement of 60 bps in consumption terms.

Pages: 38 pages
Date: 2021-12
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fdg, nep-isf, nep-mac, nep-mon and nep-pay
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Citations: View citations in EconPapers (8)

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Working Paper: CBDC as imperfect substitute to bank deposits: a macroeconomic perspective (2022) Downloads
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