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Central Bank Digital Currency and Banking Choices

Author

Listed:
  • Jiaqi Li
  • Andrew Usher
  • Yu Zhu

Abstract

To what extent does a central bank digital currency (CBDC) compete with bank deposits? To answer this question, we develop and estimate a structural model where each household chooses which financial institution to deposit their digital money with. Households value the interest paid on digital money, the possibility of obtaining complementary financial products, and the access to in-branch services. A non-interest-bearing CBDC that does not provide complementary financial products can substantially crowd out bank deposits only if it provides an extensive service network. Imposing a large limit on CBDC holding would effectively mitigate this crowding out.

Suggested Citation

  • Jiaqi Li & Andrew Usher & Yu Zhu, 2024. "Central Bank Digital Currency and Banking Choices," Staff Working Papers 24-4, Bank of Canada.
    • Handle: RePEc:bca:bocawp:24-4
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    References listed on IDEAS

    as
    1. Schilling, Linda & Fernandez-Villaverde, Jesus & Uhlig, Harald, 2020. "Central Bank Digital Currency: When price and bank stability collide," MPRA Paper 113248, University Library of Munich, Germany, revised 01 May 2022.
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    5. Anneke Kosse & Ilaria Mattei, 2023. "Making headway - Results of the 2022 BIS survey on central bank digital currencies and crypto," BIS Papers, Bank for International Settlements, number 136.
    6. Yifei Wang & Toni M. Whited & Yufeng Wu & Kairong Xiao, 2022. "Bank Market Power and Monetary Policy Transmission: Evidence from a Structural Estimation," Journal of Finance, American Finance Association, vol. 77(4), pages 2093-2141, August.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Central bank research; Digital currencies and fintech;

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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