Citation

Discussion Paper Details

Please find the details for DP14337 in an easy to copy and paste format below:

Full Details

Title: Central Bank Digital Currency: Central Banking For All?

Author(s): Jes�s Fern�ndez-Villaverde, Daniel Sanches, Linda Marlene Schilling and Harald Uhlig

Publication Date: January 2020

Keyword(s): bank runs, Central bank digital currency, central banking, intermediation, lender of last resort and maturity transformation

Programme Area(s): Monetary Economics and Fluctuations

Abstract: The introduction of a central bank digital currency (CBDC) allows the central bank to engage in large-scale intermediation by competing with private financial intermediaries for deposits. Yet, since a central bank is not an investment expert, it cannot invest in long-term projects itself, but relies on investment banks to do so. We derive an equivalence result that shows that absent a banking panic, the set of allocations achieved with private financial intermediation will also be achieved with a CBDC. During a panic, however, we show that the rigidity of the central bank's contract with the investment banks has the capacity to deter runs. Thus, the central bank is more stable than the commercial banking sector. Depositors internalize this feature ex-ante, and the central bank arises as a deposit monopolist, attracting all deposits away from the commercial banking sector. This monopoly might endangered maturity transformation.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14337

Bibliographic Reference

Fern�ndez-Villaverde, J, Sanches, D, Schilling, L and Uhlig, H. 2020. 'Central Bank Digital Currency: Central Banking For All?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14337