CBDC and Banks: Disintermediating Slow and Fast

Venue :Online Seminars
Host Name :The SEACEN Centre
Date From :24 Apr 2024
Date To :24 Apr 2024


Date: Wednesday, 24 April

Time: 3pm

Speaker: Professor Rhys Bidders, King’s Business School, London

Abstract: Rhys and co-authors provide some insights into a CBDC and its implications for financial stability, based on a model and some CBDC survey questions included in the Bundesbank's April 2023 Survey on Consumer Expectations.  Based on around how 6,000 Germans might use a hypothetical digital euro, the macroeconomic model with CBDC and a banking system is vulnerable to bank runs, as CBDC competes with bank deposits in normal times, causing the sector to shrink and de-lever somewhat (what they call slow disintermediation). It also is a useful haven for households in times of runs (fast disintermediation), as it does not exhibit storage costs at scale, like cash. Slow disintermediation may improve financial stability by shrinking a fragile banking sector, but CBDC alone seems to worsen financial stability overall, due to the increased risk of fast disintermediation being the dominant effect. But, if holding limits on CBDC are introduced (as is currently being hotly debated) one can retain the financial stability benefits of slow disintermediation, while limiting the propensity of CBDC to make runs easier.

Join us for the seminar to find out how high those holding limits need to be!