Central Bank Digital Currency: Central Banking for All? This St. Louis Fed paper, which has been kicking around in draft form for some time, discusses how the introduction of a central bank digital currency allows the central bank to engage in large-scale intermediation by competing with private financial intermediaries for deposits. In such a world, because a central bank is not an investment expert and cannot invest in long-term projects itself, it relies on commercial banks to do so. The paper derives an equivalence result that shows that absent a banking panic, the set of allocations achieved with private financial intermediation will also be achieved with a CBDC. During a panic, however, it shows that the rigidity of the central bank's contract with the investment banks has the capacity to deter runs. Thus, the central bank is more stable than the commercial banking sector. Depositors internalize this feature ex-ante, and the central bank arises as a deposit monopolist, attracting all deposits away from the commercial banking sector. This monopoly might endanger maturity transformation.
Central Bank Digital Currency: Is It a Good Idea? The Philadelphia Fed's Daniel Sanches discusses how the merits of central bank digital currency have led economists to rethink the central bank’s role in the provision of liquidity and intermediation services. Based on a review of the CBDC literature, he finds that there are many aspects of the CBDC impact on the monetary system that require additional research, such as the impact on the framework for the implementation of interest-rate policy for business-cycle adjustments.
