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Assessing the Impact of Central Bank Digital Currency on Private Banks
1 : Federal Reserve Bank of St. Louis
* : Corresponding author
I investigate the theoretical impact of central bank digital currency
(CBDC) on a monopolistic banking sector. The framework combines
the Diamond (1965) model of government debt with the Klein (1971)
and Monti (1972) model of banking. There are two main results.
First, the introduction of interest-bearing CBDC increases nancial
inclusion, diminishing the demand for physical cash. Second, while
interest-bearing CBDC reduces monopoly pro
t, it need not disinter-
mediate banks in any way. CBDC may, in fact, lead to an expansion
of bank deposits if CBDCcompetition compels banks to raise their
deposit rates.
