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Central Bank Digital Currency and Banking

Jonathan Chiu (), Janet Hua Jiang, S. Mohammad R. Davoodalhosseini () and Yu Zhu
Additional contact information
Janet Hua Jiang: Bank of Canada
Yu Zhu: Bank of Canada

No 862, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: This paper builds a model with imperfect competition in the banking sector. In the model, banks issue deposits and make loans, and deposits can be used as payment instruments by households. We use the model to assess the general equilibrium effects of introducing central bank digital currency (CBDC). We identify a new channel through which CBDC can improve the efficiency of bank intermediation and increase lending and aggregate output even if its usage is low, i.e., CBDC serves as an outside option for households, thus limiting banks' market power in the deposit market. We then calibrate the model to evaluate the quantitative implication of this channel.

Date: 2019
New Economics Papers: this item is included in nep-dge, nep-mon and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed019:862

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