Essays on Central Bank Digital Currency: literature review and quantitative evaluation of implications for banking, financial stability, and payment systems

Abstract

This thesis collates three papers about central bank digital currency (CBDC). The first chapter is a literature review of a large number of published and unpublished selected papers. This review focuses on the definition of a CBDC, on its potential effect for the banking system, the local and international macroeconomy, privacy and financial inclusion, and on estimations of CBDC demand. The second chapter is a research paper, investigating the effects of a CBDC as a new digital medium of exchange. Since a CBDC could become a new viable alternative to bank deposits for digital transaction settlement, this paper studies the potential consequences of a CBDC for banking intermediation and payment systems. It finds that a CBDC could reduce banks’ market power, fostering an increase in credit supply and in the efficiency of transaction settlement. The third chapter is a research paper, investigating the consequences of a CBDC as a new digital store of value. Since a CBDC could become an alternative to bank deposits for storing liquidity, this paper evaluates how a CBDC would affect the likelihood and severity of financial crisis and systemic bank runs. It finds that a CBDC could prevent systemic financial distress from occurring, but that this result would require the central bank to acquire a predominant role in financial intermediation.