CBDC as Imperfect Substitute to Bank Deposits: A Macroeconomic Perspective

Wed, 01 Jan 2025 00:00:00 +0000

Research question and motivation: As central banks worldwide explore retail central bank digital currency (CBDC), the macroeconomic consequences depend heavily on how CBDC interacts with bank deposits. Prior work spans a wide range of conclusions — from “no effect” (Brunnermeier and Niepelt 2019) to disintermediation that reduces lending and output (Keister and Sanches 2022; Chiu et al. 2022) to large output gains (Barrdear and Kumhof 2021, +3% GDP). Bacchetta and Perazzi argue these differences hinge on (i) how substitutable CBDC is with checking deposits, (ii) how easily banks replace lost deposits with other funding, (iii) the interest rate on CBDC, and (iv) the competitive structure of banking. The paper provides quantitative welfare estimates in a model where CBDC and deposits are imperfect substitutes and banks are in monopolistic competition.

Elena Perazzi | Macro Paper Warehouse

CBDC as Imperfect Substitute to Bank Deposits: A Macroeconomic Perspective