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The Impact of CBDC on Bank Deposits and the Interbank Market

Benjamin Hemingway

No 110, Bank of Lithuania Working Paper Series from Bank of Lithuania

Abstract: This paper investigates how the introduction of a central bank digital currency (CBDC) impacts the banking sector. The deposit market is modeled as a Salop circle and deposits are subject to liquidity shocks. Absent a CBDC the interbank market can redistribute liquidity between banks. However, the central bank does not take part in the interbank market and CBDC leads to greater reliance of the banking sector on central bank standing facilities. The model shows adjusting the remuneration rate of CBDC has little pass-through to the deposit rate set by banks and may have implications for transmission of monetary policy.

Keywords: central bank digital currency; banking; money; interbank Market (search for similar items in EconPapers)
JEL-codes: E42 E52 E58 G21 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2022-12-22
References: Add references at CitEc
Citations: View citations in EconPapers (1)

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