A Model for Central Bank Digital Currencies: Implications for Bank Funding and Monetary Policy

47 Pages Posted: 19 Nov 2020 Last revised: 30 Aug 2021

See all articles by Jonas Gross

Jonas Gross

Frankfurt School of Finance & Management

Jonathan Schiller

University of Bayreuth

Date Written: July 28, 2021

Abstract

We develop a dynamic stochastic general equilibrium (DSGE) model to study the impact of central bank digital currencies (CBDCs) on the financial sector. We focus on the effects of interest- and non- interest-bearing CBDCs during financial crises and their interactions with the effective lower bound. In addition, we analyze the role of central bank funding and a rule-based variable interest rate on CBDCs. We find that CBDCs crowd out bank deposits. However, this crowding out effect can be mitigated if the central bank chooses to provide additional central bank funds or disincentivize large-scale CBDC accumulation through low CBDC interest rates.

Keywords: CBDC, Financial stability, monetary policy, disintermediation, DSGE

JEL Classification: D53, E42, E58, G21

Suggested Citation

Gross, Jonas and Schiller, Jonathan, A Model for Central Bank Digital Currencies: Implications for Bank Funding and Monetary Policy (July 28, 2021). Available at SSRN: https://ssrn.com/abstract=3721965 or http://dx.doi.org/10.2139/ssrn.3721965

Jonas Gross (Contact Author)

Frankfurt School of Finance & Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Jonathan Schiller

University of Bayreuth ( email )

Universitatsstr 30
Bayreuth, D-95447
Germany

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