Assessing the Impact of Central Bank Digital Currency on Private Banks

By David Andolfatto. Economic Journal, 2018

355 citations recorded by the source corpus.

This paper investigates how a central bank digital currency can be expected to impact a monopolistic banking sector. The paper’s framework of analysis combines the Diamond (1965) model of government debt with the Klein (1971) and Monti (1972) model of a monopoly bank. The paper finds that the introduction of a central bank digital currency has no detrimental effect on bank lending activity and may, in some circumstances, even serve to promote it. Competitive pressure leads to a higher monopoly deposit rate which reduces profit but expands deposit funding through greater financial inclusion and desired saving. An appeal to available theory and evidence suggests that a properly designed central bank digital currency is not likely to threaten financial stability.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/0e700e544c82e979d8490f76f8797b46d65c38c3

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Citations in the corpus

Should Central Banks Issue Digital Currency? (2019, background): “As equations (1) and (2) make clear, the distribution of CM consumption across agents has no impact on welfare.”
The technology of retail central bank digital currency (2020, background): “Andolfatto (2018), Kumhof and Noone (2018), and Bindseil (2020) examine how the impact on the central bank’s balance sheet can be managed, while Brunnermeier and Niepelt (2019) investigate how financial instability risks can be mitigated.”
Designing Central Bank Digital Currencies (2019, background): “Andolfatto (2018) and Chiu et al. (2019) develop models where CBDC raises welfare by reducing banks’ deposit market power, while Brunnermeier and Niepelt (2019), Kim and Kwon (2019) and Miccoli (2019) model the relationship between banking panics and the availability of CBDC.9 In Keister and…”
Central bank digital currency: Central banking for all? (2020, neutral): “Beyond the many papers cited above, Andolfatto (2020), Böser and Gersbach (2019), Brunnermeier and Niepelt (2019), Chiu et al. (2019), Niepelt (2020), and Keister and Sanches (2019) discuss related issues to ours regarding the interaction between the commercial banking sector and a CBDC.”