Central Bank Digital Currency and Bank Intermediation

53 Pages Posted: 13 May 2022

See all articles by Ramón Adalid

Ramón Adalid

European Central Bank (ECB)

Álvaro Álvarez-Blázquez

Bank of England

Katrin Assenmacher

European Central Bank (ECB)

Lorenzo Burlon

European Central Bank (ECB)

Maria Dimou

European Central Bank (ECB)

Carolina López-Quiles

International Monetary Fund (IMF)

Natalia Martín Fuentes

European Central Bank (ECB)

Barbara Meller

European Central Bank (ECB)

Manuel Muñoz

European Central Bank (ECB)

Petya Radulova

European Central Bank (ECB)

Costanza Rodriguez d’Acri

European Central Bank (ECB)

Tamarah Shakir

European Central Bank (ECB)

Gabriela Šílová

Morgan Stanley

Oscar Soons

De Nederlandsche Bank

Alexia Ventula Veghazy

European Central Bank (ECB)

Date Written: May 1, 2022

Abstract

In July 2021 the Eurosystem decided to launch the investigation phase of the digital euro project, which aims to provide euro area citizens with access to central bank money in an increasingly digitalised world. While a digital euro could offer a wide range of benefits, it could prompt changes in the demand for bank deposits and services from private financial entities (ECB, 2020a), with knock-on consequences for bank lending and resilience. By inducing bank disintermediation, a central bank digital currency, or CBDC, could in principle alter the transmission of monetary policy and impact financial stability. To prevent this risk, options to moderate CBDC take-up are being discussed widely.In view of the significant degree of uncertainty surrounding the design of a potential digital euro, its demand and the prevailing environment in which it would be introduced, this paper explores a set of analytical exercises that can offer insights into the consequences it could have for bank intermediation in the euro area.Based on assumptions about the degree of substitution between different forms of money in normal times, several take-up scenarios are calculated to illustrate how the potential demand for a digital euro might shape up. The paper then analyses the mechanisms through which commercial banks and the central bank could react to the introduction of a digital euro. Overall, effects on bank intermediation are found to vary across credit institutions in normal times and to be potentially larger in stressed times. Further, a potential digital euro’s capacity to alter system-wide bank run dynamics appears to depend on a few crucial factors, such as CBDC remuneration and usage limits.

Keywords: bank intermediation, bank runs, CBDC, digital euro

JEL Classification: E42, E51, G21

Suggested Citation

Adalid, Ramón and Álvarez-Blázquez, Álvaro and Assenmacher, Katrin and Burlon, Lorenzo and Dimou, Maria and López-Quiles, Carolina and Fuentes, Natalia Martín and Meller, Barbara and Muñoz, Manuel and Radulova, Petya and d’Acri, Costanza Rodriguez and Shakir, Tamarah and Šílová, Gabriela and Soons, Oscar and Veghazy, Alexia Ventula, Central Bank Digital Currency and Bank Intermediation (May 1, 2022). ECB Occasional Paper No. 2022/293, Available at SSRN: https://ssrn.com/abstract=4108346 or http://dx.doi.org/10.2139/ssrn.4108346

Ramón Adalid (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Álvaro Álvarez-Blázquez

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Katrin Assenmacher

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Lorenzo Burlon

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Maria Dimou

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Carolina López-Quiles

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Natalia Martín Fuentes

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Barbara Meller

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Manuel Muñoz

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Petya Radulova

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Costanza Rodriguez D’Acri

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Tamarah Shakir

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Gabriela Šílová

Morgan Stanley ( email )

1585 Broadway
New York, NY 10036
United States

Oscar Soons

De Nederlandsche Bank ( email )

Amsterdam
Netherlands

Alexia Ventula Veghazy

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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