The optimal quantity of CBDC in a bank-based economy

Lorenzo Burlon, Montes-Galdón, Carlos, Muñoz, Manuel A. and Frank Smets
Authors registered in the RePEc Author Service: Manuel A. Muñoz and Carlos Montes-Galdón

No 16995, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Recent studies suggest that the risk of bank disintermediation through deposit substitution could undermine the potential benefits of issuing a central bank digital currency (CBDC); a technologically superior means of payment issued by a central bank. First, we provide evidence on the estimated impact of digital euro news on euro area bank stock prices. The expected impact of CBDC on bank valuations and lending supply crucially depends on the design features aimed at calibrating the amount of CBDC in circulation. Then, we develop a quantitative DSGE model that incorporates these trade-offs and a selection of mechanisms through which the issuance of a CBDC could affect bank intermediation and the real economy. The sign and magnitude of the impact depend on the design of a CBDC as well as on the response of the central bank balance sheet and its collateral framework. Welfare-maximizing CBDC policy rules are effective in mitigating the risk of bank disintermediation and induce significant welfare gains. The model suggests that the welfare-maximizing amount of CBDC in circulation for the case of the euro area lies between 15% and 45% of quarterly real GDP in equilibrium.

Keywords: Central bank digital currency; Bank intermediation; Dsge models (search for similar items in EconPapers)
JEL-codes: E42 E58 G21 (search for similar items in EconPapers)
Date: 2022-02
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Related works:
Journal Article: The Optimal Quantity of CBDC in a Bank-Based Economy (2024)
Working Paper: The optimal quantity of CBDC in a bank-based economy (2023)
Working Paper: The optimal quantity of CBDC in a bank-based economy (2022)
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