IDEAS home Printed from https://ideas.repec.org/a/jns/jbstat/v245y2025i4-5p479-526n1001.html
   My bibliography  Save this article

Banking Crises Under a Central Bank Digital Currency (CBDC)

Author

Listed:
  • Bitter Lea

    (European Central Bank 39459 , Frankfurt am Main, Germany)

Abstract

One of the main concerns associated with central bank digital currencies (CBDC) is the disintermediating effect on the banking sector in general, and the risk of bank runs in times of crisis in particular. This paper examines the implications of an interest-bearing CBDC on banking crises in a dynamic bank run model with a financial accelerator. The analysis distinguishes between bank failures due to illiquidity and due to insolvency. In a numerical exercise, CBDC leads to a reduction in the net worth of banks in normal times but mitigates the risk of a bank run in times of crisis. The financial stability implications also depend on how CBDC is accounted for on the asset side of the central bank balance sheet: if CBDC issuance is complemented by asset purchases, it delays the onset of both types of bank failures to larger shocks. In contrast, if CBDC issuance is complemented by loans to banks, it substantially impedes failures due to illiquidity, but only marginally affects bank failures due to insolvency.

Suggested Citation

  • Bitter Lea, 2025. "Banking Crises Under a Central Bank Digital Currency (CBDC)," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 245(4-5), pages 479-526.
    • Handle: RePEc:jns:jbstat:v:245:y:2025:i:4-5:p:479-526:n:1001
    DOI: 10.1515/jbnst-2023-0107
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/jbnst-2023-0107
    Download Restriction: no
    File URL: https://libkey.io/10.1515/jbnst-2023-0107?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jns:jbstat:v:245:y:2025:i:4-5:p:479-526:n:1001. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyterbrill.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.