Digital Currencies in Financial Networks

50 Pages Posted: 17 Dec 2020

See all articles by Olli Castren

Olli Castren

European Banking Authority

Ilja Kristian Kavonius

European Central Bank; Centre for Consumer Society Research, University of Helsinki

Michela Rancan

Polytechnic University of Marche

Date Written: June 15, 2020

Abstract

We introduce a digital currency, either as a central bank digital currency (CBDC) or a financial crypto asset (stablecoin), in the network of financial accounts. Simulating a shift of deposits by both households and non-financial corporations from the banking sector to the digital currency, we model the different responses of the affected institutional sectors. We find that the introduction of a digital currency generates significant adjustments in the balance sheets of all sectors, may trigger large moves in securities prices and induces changes in the network structure. The economic impacts vary depending on the design of the digital innovation, the size of the deposit shift, the channels through which the balance sheet adjustments take place and the timing of the initiative.

Keywords: Digital Currency, Central Bank Digital Currency, Stablecoins, Macro-network, Financial Intermediation, Financial Stability

JEL Classification: G21, E58

Suggested Citation

Castren, Olli and Kavonius, Ilja Kristian and Rancan, Michela, Digital Currencies in Financial Networks (June 15, 2020). European Banking Authority Research Paper No. 8, Available at SSRN: https://ssrn.com/abstract=3749352 or http://dx.doi.org/10.2139/ssrn.3749352

Olli Castren (Contact Author)

European Banking Authority ( email )

20 avenue André Prothin CS 30154
One Canada Square, Canary Wharf
92927 Paris, La Défense CEDEX E14 5AA
France

Ilja Kristian Kavonius

European Central Bank ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49-13448417 (Phone)

HOME PAGE: http://www.ecb.europa.eu/pub/research/authors/profiles/ilja-kristian-kavonius.en.html

Centre for Consumer Society Research, University of Helsinki ( email )

Finland

HOME PAGE: http://tuhat.helsinki.fi/portal/en/person/ikavoniu

Michela Rancan

Polytechnic University of Marche ( email )

Piazzale Martelli 8
Ancona, 18039
Italy

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