EconPapers    
Economics at your fingertips  
 

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

Abstract: 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)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:2018-025

Ordering information: This working paper can be ordered from

DOI: 10.20955/wp.2018.026

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 ().

 
Page updated 2019-06-25
Handle: RePEc:fip:fedlwp:2018-025