Assessing the Impact of Central Bank Digital Currency on Private Banks
David Andolfatto ()
No 2018-25, Working Papers from Federal Reserve Bank of St. Louis
I investigate the theoretical impact of central bank digital currency (CBDC) on a monopolistic banking sector. The framework combines the Diamond (1965) model of government debt with the Klein (1971) and Monti (1972) model of banking. There are two main results. First, the introduction of interest-bearing CBDC increases financial inclusion, diminishing the demand for physical cash. Second, while interest-bearing CBDC reduces monopoly profit, it need not disintermediate banks in any way. CBDC may, in fact, lead to an expansion of bank deposits if CBDC competition compels banks to raise their deposit rates.
Keywords: Digital Currency; Central Banks; Monopoly; Markups (search for similar items in EconPapers)
JEL-codes: E4 E5 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fle, nep-mac, nep-mon and nep-pay
Date: 2018-10-05, Revised 2019-04-25
Note: New working paper number 2018-026
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://s3.amazonaws.com/real.stlouisfed.org/wp/2018/2018-026.pdf Full text (application/pdf)
https://doi.org/10.20955/wp.2018.026 https://doi.org/10.20955/wp.2018.026 (text/html)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:2018-025
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in Working Papers from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Anna Oates ().