Journal of Political Economy Vol. 131 No. 5 2023
Bank Market Power and Central Bank Digital Currency: Theory and Quantitative Assessment
Abstract
This paper develops a micro-founded general equilibrium model of payments to study the impact of a central bank digital currency (CBDC) on intermediation of private banks. If banks have market power in the deposit market, a CBDC can enhance competition, raising the deposit rate, expanding intermediation, and increasing output. A calibration to the US economy suggests that a CBDC can raise bank lending by 1.57% and output by 0.19%. These crowding-in effects remain robust, albeit with smaller magnitudes, after taking into account endogenous bank entry. We also assess the role of a non-interest-bearing CBDC as the use of cash declines.
- DOI
- 10.1086/722517
- Volume
- 131
- Issue
- 5
- Pages
- 1213-1248
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref