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CBDC and the Banking System

Author

Listed:
  • Auer Simone

    (Directorate General for Economics, Statistics and Research – Economic Outlook and Monetary Policy Directorate, 5099 Bank of Italy , Roma, Italy)

  • Branzoli Nicola

    (Directorate General for Economics, Statistics and Research – Financial Stability Directorate, 5099 Bank of Italy , Roma, Italy)

  • Ferrero Giuseppe

    (Directorate General for Economics, Statistics and Research – Economic Outlook and Monetary Policy Directorate, 5099 Bank of Italy , Roma, Italy)

  • Ilari Antonio

    (AML Supervision and Regulation Unit, 5099 Bank of Italy , Roma, Italy)

  • Palazzo Francesco

    (Directorate General for Economics, Statistics and Research – Financial Stability Directorate, 5099 Bank of Italy , Roma, Italy)

  • Rainone Edoardo

    (Directorate General for Economics, Statistics and Research – Financial Stability Directorate, 5099 Bank of Italy , Roma, Italy)

Abstract

This paper examines the potential impact a central bank digital currency (CBDC) on banks’ balance sheets. We first analyze the possible implications of the introduction of a CBDC for the banking system and the economy as a whole. Our analysis indicates that the impact of a CBDC depends on a number of design choices and on how credit institutions re-optimize their balance sheets in response to the outflow of deposits caused by the substitution of private money with public digital money. We then present a series of illustrative simulations on the impact of a CBDC on the funding structure and profitability of credit institutions using data on Italian banks between June 2021 and March 2023. The analysis suggests that the overall impact on banks’ funding could be manageable in the presence of individual holding limits and in an environment characterized by ample liquidity and stable funding for credit institutions. The cost of covering the reduction of deposits would be relatively higher for intermediaries with low excess reserves and for those that may need to issue long-term liabilities to maintain stable funding levels above regulatory requirements.

Suggested Citation

  • Auer Simone & Branzoli Nicola & Ferrero Giuseppe & Ilari Antonio & Palazzo Francesco & Rainone Edoardo, 2025. "CBDC and the Banking System," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 245(4-5), pages 435-478.
  • Handle: RePEc:jns:jbstat:v:245:y:2025:i:4-5:p:435-478:n:1003
    DOI: 10.1515/jbnst-2024-0006
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    More about this item

    Keywords

    central bank digital currency; monetary policy; financial stability; banks; money;
    All these keywords.

    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • 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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