When CBDCs are not perfect substitutes
In this paper, Chen and Filippin investigate if the issuance of central bank digital currency (CBDC) leads to disruptions in financial markets due to bank disintermediation rather than bank runs. Their underlying assumption is that CBDCs might not be perfect substitutes to bank deposits. The authors extend the real business cycle model in Niepelt (2022) by incorporating a collateral constraint for banks when borrowing from the central bank. They find that:
- When CBDC and deposits are perfect substitutes, introducing CBDC can be neutral to the real economy if (1) the resource cost per unit of effective real balances is the same for CBDC and deposits and (2) the central bank offers a loan rate that induces non-competitive banks to maintain the same balance sheet positions as before the introduction of CBDC.
- When CBDCs and deposits are imperfect substitutes the central bank cannot make banks indifferent to the competition from CBDC because there is no loan rate that the central bank can offer that would leave unchanged banks’ profits. Therefore, the new policy does not guarantee the same equilibrium allocations as before, implying that the introduction of CBDC has real effects on the economy.
Unveiling the Interplay between Central Bank Digital Currency and Bank Deposits
Authors: Hanfeng Chen, Maria Elena Filippin
From: Uppsala University
A granular look at the impact of CBDCs on banks
In this paper, Vollmar and Wenig examine the implications of introducing a CBDC for commercial banks that rely heavily on customer deposits. The authors use a unique hand-collected customer data set from savings and cooperative banks in Germany to model realistic conversion rates of deposits into a hypothetical CBDC aligned with the expected design for a digital euro. Their sample comprises data from 2,001 savings and cooperative banks from 2000–2020. They find:
- Even at moderate 5-15% conversion rates, simulations show most banks would have experienced funding problems and profit declines if a CBDC was introduced in most years since 2000. This is due to the fact that these banks have insufficient excess reserves to cover deposit outflows.
- Banks would need to refinance the deposit outflows via interbank or central bank loans, encumbering assets. This reduces liquidity and profitability as cheap deposit funding is replaced with higher-interest loans.
- Although banks currently have high excess reserves, scenario analysis for 2026 still shows around 40% of banks unable to fully cover a 5% deposit conversion with reserves.
The Impact of CBDC on a Deposit-Dependent Banking System
Authors: Steffen Vollmar, Fabian Wening
From: University of Münster
