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Research on the Crowding-Out Effect of Central Bank Digital Currency Issuance on Commercial Bank Deposits - A General Equilibrium Based Perspective

In: Proceedings of 2025 2nd International Conference on Applied Economics, Management Science and Social Development (AEMSS 2025)

Author

Listed:
  • Zhen Sun

    (Nankai University, School of Finance)

  • Lanbiao Liu

    (Nankai University, School of Finance)

Abstract

Since the rise of cryptocurrencies such as Bitcoin in the early 2010s, the research, piloting and implementation of central bank digital currencies (CBDCs) are accelerating to breakthroughs around the world. This paper constructs a multisectoral general equilibrium model to study the crowding-out effect of the issuance of CBDC on banking sector deposits and its mechanism under the scenario of CBDC-cash equivalence, and clarifies the optimal rules and parameter dependence of deposits and reserves in economies containing CBDC by solving the general equilibrium conditions and setting up the optimal policy rules. The impact of this effect on the dynamic optimization of policy is further analyzed. The conclusions show that increasing the reserve rate and government deposit subsidy will improve the deposit liquidity premium and stabilize the deposit interest rate, and that the government and the central bank can choose with discretion between issuing base money (cash or CBDC) or relying on bank deposits without lending to banks.

Suggested Citation

  • Zhen Sun & Lanbiao Liu, 2025. "Research on the Crowding-Out Effect of Central Bank Digital Currency Issuance on Commercial Bank Deposits - A General Equilibrium Based Perspective," Advances in Economics, Business and Management Research, in: Jiye Hu & Huaping Sun & Au Yong Hui Nee & Paulo Batista (ed.), Proceedings of 2025 2nd International Conference on Applied Economics, Management Science and Social Development (AEMSS 2025), pages 186-196, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6463-752-6_20
    DOI: 10.2991/978-94-6463-752-6_20
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