Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/273785 
Year of Publication: 
2023
Series/Report no.: 
IHS Working Paper No. 47
Publisher: 
Institut für Höhere Studien - Institute for Advanced Studies (IHS), Vienna
Abstract: 
We estimate a dynamic banking model to quantify the impact of a central bank digital currency (CBDC) on the banking system. Our counterfactuals show that a one-dollar introduction of CBDC replaces bank deposits by around 80 cents on the margin. Bank lending falls by one-fourth of the drop in deposits because banks partially replace lost deposits with wholesale funding. This substitution raises banks' interest-rate risk exposure and lowers their resilience to negative equity shocks. If CBDC bears interest or is intermediated through banks, it captures a greater deposit market share, amplifying the impact on lending. The effect on lending is amplified for small banks, for which wholesale funding is more expensive.
Subjects: 
central bank digital currency
banking competition
maturity mismatch,financial stability
JEL: 
E51
E52
G21
G28
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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