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The Impact of CBDC on Bank Deposits and the Interbank Market

Author

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  • Benjamin Hemingway

    (Bank of Lithuania, Vilnius University)

Abstract

This paper investigates how the introduction of a central bank digital currency (CBDC) impacts the banking sector. The deposit market is modeled as a Salop circle and deposits are subject to liquidity shocks. Absent a CBDC the interbank market can redistribute liquidity between banks. However, the central bank does not take part in the interbank market and CBDC leads to greater reliance of the banking sector on central bank standing facilities. The model shows adjusting the remuneration rate of CBDC has little pass-through to the deposit rate set by banks and may have implications for transmission of monetary policy.

Suggested Citation

  • Benjamin Hemingway, 2022. "The Impact of CBDC on Bank Deposits and the Interbank Market," Bank of Lithuania Working Paper Series 110, Bank of Lithuania.
    • Handle: RePEc:lie:wpaper:110
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    More about this item

    Keywords

    central bank digital currency; banking; money; interbank Market;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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