Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/278359 
Year of Publication: 
2023
Series/Report no.: 
ECB Working Paper No. 2783
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
What is the effect of Central Bank Digital Currency (CBDC) on financial stability? We answer this question by studying a model of financial intermediation with an endogenously determined probability of a bank run, using global games. As an alternative to bank deposits, consumers can also store their wealth in remunerated CBDC issued by the central bank. Consistent with widespread concerns among policymakers, higher CBDC remuneration increases the withdrawal incentives of consumers, and thus bank fragility. However, the bank optimally responds to the additional competition by offering better deposit rates to retain funding, which reduces fragility. Thus, the overall relationship between CBDC remuneration and bank fragility is U-shaped.
Subjects: 
Central Bank Digital Currency
Bank Fragility
Demand Deposits
Global Games
JEL: 
D82
G01
G21
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-5525-6
Document Type: 
Working Paper

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