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Tiered CBDC and the financial system

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  • Bindseil, Ulrich

Abstract

IT progress and its application to the financial industry have inspired central banks and academics to analyse the merits of central bank digital currencies (CBDC) accessible to the broad public. This paper first reviews the advantages and risks of such CBDC. It then discusses two prominent arguments against CBDC, namely (i) risk of structural disintermediation of banks and centralization of the credit allocation process within the central bank and (ii) risk of facilitation systemic runs on banks in crisis situations. Two-tier remuneration of CBDC is proposed as solution to both issues, and a comparison is provided with a simple cap solution and the solution of Kumhof and Noone (2018). Finally, the paper compares the financial account implications of CBDC with the ones of crypto assets, Stablecoins, and narrow bank digital money, in a domestic and international context. JEL Classification: E3, E5, G1

Suggested Citation

  • Bindseil, Ulrich, 2020. "Tiered CBDC and the financial system," Working Paper Series 2351, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20202351
    Note: 327704
    as

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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2351~c8c18bbd60.en.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    central bank digital currencies; central banks; financial accounts; financial instability;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G1 - Financial Economics - - General Financial Markets

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