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Central Bank Digital Currency and Banking

Author

Listed:
  • Jonathan Chiu

    (Bank of Canada)

  • Janet Hua Jiang

    (Bank of Canada)

  • Seyed Mohammadreza Davoodalhosseini

    (Bank of Canada)

  • Yu Zhu

    (Bank of Canada)

Abstract

This paper builds a model with imperfect competition in the banking sector. In the model, banks issue deposits and make loans, and deposits can be used as payment instruments by households. We use the model to assess the general equilibrium effects of introducing central bank digital currency (CBDC). We identify a new channel through which CBDC can improve the efficiency of bank intermediation and increase lending and aggregate output even if its usage is low, i.e., CBDC serves as an outside option for households, thus limiting banks' market power in the deposit market. We then calibrate the model to evaluate the quantitative implication of this channel.

Suggested Citation

  • Jonathan Chiu & Janet Hua Jiang & Seyed Mohammadreza Davoodalhosseini & Yu Zhu, 2019. "Central Bank Digital Currency and Banking," 2019 Meeting Papers 862, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:862
    as

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    References listed on IDEAS

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