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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

    as
    1. repec:eee:moneco:v:106:y:2019:i:c:p:16-26 is not listed on IDEAS
    2. Linda Schilling & Harald Uhlig, 2018. "Some Simple Bitcoin Economics," NBER Working Papers 24483, National Bureau of Economic Research, Inc.
    3. 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.
    4. James Chapman & Carolyn A. Wilkins, 2019. "Crypto ‘Money’: Perspective of a Couple of Canadian Central Bankers," Discussion Papers 2019-1, Bank of Canada.
    5. Ben Fung & Hanna Halaburda, 2016. "Central Bank Digital Currencies: A Framework for Assessing Why and How," Discussion Papers 16-22, Bank of Canada.
    6. Berentsen, Aleksander & Camera, Gabriele & Waller, Christopher, 2007. "Money, credit and banking," Journal of Economic Theory, Elsevier, vol. 135(1), pages 171-195, July.
    7. repec:fip:fedlrv:00097 is not listed on IDEAS
    8. Yu Zhu & Scott Hendry, 2019. "A Framework for Analyzing Monetary Policy in an Economy with E-money," Staff Working Papers 19-1, Bank of Canada.
    9. Andolfatto, David, 2018. "Assessing the Impact of Central Bank Digital Currency on Private Banks," Working Papers 2018-25, Federal Reserve Bank of St. Louis, revised 25 Apr 2019.
    10. Barrdear, John & Kumhof, Michael, 2016. "The macroeconomics of central bank issued digital currencies," Bank of England working papers 605, Bank of England.
    11. Pablo Kurlat, 2018. "Deposit Spreads and the Welfare Cost of Inflation," NBER Working Papers 25385, National Bureau of Economic Research, Inc.
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    15. Mohammad Davoodalhosseini, 2018. "Central Bank Digital Currency and Monetary Policy," Staff Working Papers 18-36, Bank of Canada.
    16. Foster, Kevin & Schuh, Scott & Zhang, Hanbing, 2013. "The 2010 Survey of Consumer Payment Choice," Research Data Report 13-2, Federal Reserve Bank of Boston.
    17. 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.
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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. Chao Gu & Cyril Monnet & Ed Nosal & Randall Wright, 2019. "On the Instability of Banking and Financial Intermediation," 2019 Meeting Papers 352, Society for Economic Dynamics.

    More about this item

    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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