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Could the Issuance of CBDC Reduce the Likelihood of Banking Panic?

Author

Listed:
  • Soraya BEN SOUISSI

    (University of Carthage, LEGI-Tunisia Polytechnic School and FSEG Nabeul, Tunisia)

  • Mahmoud Sami NABI

    (University of Carthage, LEGI-Tunisia Polytechnic School and FSEG Nabeul, Tunisia ERF, Economic Research Forum, Egypt)

Abstract

This paper delves into the relationship between the issuance of Central Bank Digital Currencies (CBDC) and the likelihood of banking panic. The issuance of CBDC acts as a disturbing shock that incentivizes depositors to withdraw all/part of their deposits from the commercial banks, to swap it for CBDC which are offered by the central bank. We determine a variety of tools that central banks can use in order for the issuance of CBDC to act as a stabilizing factor of the banking system (by reducing the likelihood of banking panic).

Suggested Citation

  • Soraya BEN SOUISSI & Mahmoud Sami NABI, 2023. "Could the Issuance of CBDC Reduce the Likelihood of Banking Panic?," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 12(2), pages 83-101.
    • Handle: RePEc:cbk:journl:v:12:y:2023:i:2:p:83-101
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    More about this item

    Keywords

    Central bank digital currency; liquidity; financial stability.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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