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
Date Written: July 28, 2021
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: Suggested Citation