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Tiered CBDC and the financial system

Ulrich Bindseil

No 2351, Working Paper Series from European Central Bank

Abstract: IT progress and its application to the financial industry have inspired central banks and academics to analyse the merits of central bank digital currencies (CBDC) accessible to the broad public. This paper first reviews the advantages and risks of such CBDC. It then discusses two prominent arguments against CBDC, namely (i) risk of structural disintermediation of banks and centralization of the credit allocation process within the central bank and (ii) risk of facilitation systemic runs on banks in crisis situations. Two-tier remuneration of CBDC is proposed as solution to both issues, and a comparison is provided with a simple cap solution and the solution of Kumhof and Noone (2018). Finally, the paper compares the financial account implications of CBDC with the ones of crypto assets, Stablecoins, and narrow bank digital money, in a domestic and international context. JEL Classification: E3, E5, G1

Keywords: central bank digital currencies; central banks; financial accounts; financial instability (search for similar items in EconPapers)
Date: 2020-01
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-pay
Note: 327704
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20202351

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