Central Bank Digital Currency: Central Banking for All?

34 Pages Posted: 18 Feb 2020

See all articles by Jesús Fernández-Villaverde

Jesús Fernández-Villaverde

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Daniel R. Sanches

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Linda Schilling

Ecole Polytechnique- CREST

Harald Uhlig

University of Chicago - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: February 2020

Abstract

The introduction of a central bank digital currency (CBDC) allows the central bank to engage in large-scale intermediation by competing with private financial intermediaries for deposits. Yet, since a central bank is not an investment expert, it cannot invest in long-term projects itself, but relies on investment banks to do so. We derive an equivalence result that shows that absent a banking panic, the set of allocations achieved with private financial intermediation will also be achieved with a CBDC. During a panic, however, we show that the rigidity of the central bank's contract with the investment banks has the capacity to deter runs. Thus, the central bank is more stable than the commercial banking sector. Depositors internalize this feature ex-ante, and the central bank arises as a deposit monopolist, attracting all deposits away from the commercial banking sector. This monopoly might endangered maturity transformation.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Suggested Citation

Fernández-Villaverde, Jesús and Sanches, Daniel R. and Schilling, Linda and Uhlig, Harald, Central Bank Digital Currency: Central Banking for All? (February 2020). NBER Working Paper No. w26753, Available at SSRN: https://ssrn.com/abstract=3539320

Jesús Fernández-Villaverde (Contact Author)

University of Pennsylvania - Department of Economics ( email )

3718 Locust Walk
160 McNeil Building
Philadelphia, PA 19104
United States
215-898-1504 (Phone)
215-573-2057 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Daniel R. Sanches

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Linda Schilling

Ecole Polytechnique- CREST ( email )

5 Avenue Henry Le Chatelier
Palaiseau, 91120
France

Harald Uhlig

University of Chicago - Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
10
Abstract Views
122
PlumX Metrics