Central Bank Digital Currency: Will Banks Survive?

41 Pages Posted: 4 Aug 2022 Last revised: 28 Sep 2022

See all articles by Sergey Sarkisyan

Sergey Sarkisyan

The Wharton School, University of Pennsylvania

Date Written: August 28, 2022


Will an introduction of CBDC cause disintermediation? I provide empirical and theoretical evidence that CBDC will not necessarily crowd out bank deposits in economies with significant demand for currency. I estimate the model for the US using data on households' payment choices and find that non-interest-bearing CBDC will lead instead to an inflow of deposits caused by cash substitution. Banks then lower deposit rates and lend more. Similarly, banks will not contract lending if CBDC is intermediated even if they experience an outflow of deposits. Finally, I show that CBDC can lead to disintermediation when it is interest-bearing.

Keywords: Central bank digital currency, demand for currency, intermediation, financial stability

JEL Classification: E41, E51, E58, G21

Suggested Citation

Sarkisyan, Sergey, Central Bank Digital Currency: Will Banks Survive? (August 28, 2022). Jacobs Levy Equity Management Center for Quantitative Financial Research Paper , Available at SSRN: https://ssrn.com/abstract=4176990 or http://dx.doi.org/10.2139/ssrn.4176990

Sergey Sarkisyan (Contact Author)

The Wharton School, University of Pennsylvania ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

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