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Central Bank Digital Currency and Banking

Author

Listed:
  • Jonathan Chiu

    (Bank of Canada)

  • Janet Hua Jiang

    (Bank of Canada)

  • Seyed Mohammadreza Davoodalhosseini

    (Bank of Canada)

  • Yu Zhu

    (Bank of Canada)

Abstract

This paper builds a model with imperfect competition in the banking sector. In the model, banks issue deposits and make loans, and deposits can be used as payment instruments by households. We use the model to assess the general equilibrium effects of introducing central bank digital currency (CBDC). We identify a new channel through which CBDC can improve the efficiency of bank intermediation and increase lending and aggregate output even if its usage is low, i.e., CBDC serves as an outside option for households, thus limiting banks' market power in the deposit market. We then calibrate the model to evaluate the quantitative implication of this channel.

Suggested Citation

  • Jonathan Chiu & Janet Hua Jiang & Seyed Mohammadreza Davoodalhosseini & Yu Zhu, 2019. "Central Bank Digital Currency and Banking," 2019 Meeting Papers 862, Society for Economic Dynamics.
  • Handle: RePEc:red:sed019:862
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    File URL: https://economicdynamics.org/meetpapers/2019/paper_862.pdf
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    References listed on IDEAS

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    8. Mohammad Davoodalhosseini & Francisco Rivadeneyra, 2018. "A Policy Framework for E-Money: A Report on Bank of Canada Research," Discussion Papers 18-5, Bank of Canada.
    9. Charles M. Kahn & Francisco Rivadeneyra & Tsz-Nga Wong, 2018. "Should the Central Bank Issue E-money?," Staff Working Papers 18-58, Bank of Canada.
    10. Todd Keister & Daniel R. Sanches, 2019. "Should Central Banks Issue Digital Currency?," Working Papers 19-26, Federal Reserve Bank of Philadelphia.
    11. Itamar Drechsler & Alexi Savov & Philipp Schnabl, 2018. "Banking on Deposits: Maturity Transformation without Interest Rate Risk," NBER Working Papers 24582, National Bureau of Economic Research, Inc.
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    14. Tommaso Mancini Griffoli & Maria Soledad Martinez Peria & Itai Agur & Anil Ari & John Kiff & Adina Popescu & Celine Rochon, 2018. "Casting Light on Central Bank Digital Currencies," IMF Staff Discussion Notes 18/08, International Monetary Fund.
    15. Ben Fung & Hanna Halaburda, 2016. "Central Bank Digital Currencies: A Framework for Assessing Why and How," Discussion Papers 16-22, Bank of Canada.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Central Bank Digital Currency and Banking
      by Christian Zimmermann in NEP-DGE blog on 2019-10-23 20:40:03

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    Cited by:

    1. Ferrari, Massimo & Mehl, Arnaud & Stracca, Livio, 2020. "Central bank digital currency in an open economy," CEPR Discussion Papers 15335, C.E.P.R. Discussion Papers.
    2. Schiller, Jonathan & Gross, Jonas, 2021. "A Model for Central Bank Digital Currencies: Implications for Bank Funding and Monetary Policy," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242350, Verein für Socialpolitik / German Economic Association.
    3. He Huang, 2019. "How Does Information Transmission Influence the Value Creation Capability of a Digital Ecosystem? An Empirical Study of the Crypto-Digital Ecosystem Ethereum," Sustainability, MDPI, Open Access Journal, vol. 11(19), pages 1-16, September.
    4. Altermatt, Lukas & Wang, Zijian, 2021. "Oligopoly Banking, Risky Investment, and Monetary Policy," Economics Discussion Papers 30728, University of Essex, Department of Economics.
    5. Beniak, Patrycja, 2019. "Central bank digital currency and monetary policy: a literature review," MPRA Paper 96663, University Library of Munich, Germany.
    6. Arauz, Andrés & Garratt, Rodney & Ramos F., Diego F., 2021. "Dinero Electrónico: The rise and fall of Ecuador's central bank digital currency," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 2(2).
    7. Ohik Kwon & Seungduck Lee & Jaevin Park, 2020. "Central Bank Digital Currency, Tax Evasion, Inflation Tax, and Central Bank Independence," Working Papers 2020-26, Economic Research Institute, Bank of Korea.

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