CBDC as Imperfect Substitute for Bank Deposits: A Macroeconomic Perspective

Bacchetta, Philippe; Perazzi, Elena

doi:10.2139/ssrn.3976994

Cited by 4 publications

(3 citation statements)

References 21 publications

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“…This implies that a well-designed central bank digital currency will not threaten financial stability (Andolfatto, 2021). Bacchetta and Perazzi (2022) showed that a CBDC is an imperfect substitute for bank deposits and the design of CBDC is characterized by its interest rate, its substitutability with bank deposits, and its relative liquidity. They also showed that CBDC will improve welfare through three channels: seigniorage; a lower opportunity cost of money; and a redistribution away from bank owners.…”

Section: Literature Reviewmentioning

confidence: 99%

Impact of Central Bank Digital Currency (CBDC) Activity on Bank Loan Loss Provisions

Ozili,

Obiora

2024

The Impact of AI Innovation on Financial Sectors in the Era of Industry 5.0

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This article explores the potential effect of central bank digital currency activity on bank loan loss provisions. The authors show that the effect of CBDC activity on bank loan loss provisions depends on the nature of CBDC activity and whether CBDC activity is regulated or non-regulated. As more people use CBDCs, it could lead to shortfall in bank deposits and increase funding risk and liquidity risk and generate a pass-through to credit risk which would require banks to increase loan loss provisions in anticipation of loan loss arising from CBDC activity. CBDC regulation may dampen this effect.

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Section: Literature Reviewmentioning

confidence: 99%

Impact of Central Bank Digital Currency (CBDC) Activity on Bank Loan Loss Provisions

Ozili,

Obiora

2024

The Impact of AI Innovation on Financial Sectors in the Era of Industry 5.0

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“…When the deposit rate on interest-bearing CBDC is high, bank customers will have incentives to migrate their bank deposits to CBDC deposits in order to benefit from the high deposit rate on interest-bearing CBDC (Ozili, 2022b). This will lead to a significant reduction in bank deposits and compel banks to find alternative sources of funding which would come at high cost (Bacchetta and Perazzi, 2021). The migration of deposit from banks to CBDC will reduce banks' ability to lend from available deposits (Bindseil, 2019).…”

Section: High Interest Rate On Interest-bearing Cbdcmentioning

confidence: 99%

“…CBDCs are also designed to permit the transfer of bank deposits into a CBDC account as “CBDC deposits”. The process of moving deposits from a bank account to CBDC account is commonly referred to as bank disintermediation because the migrated bank deposits are no longer available to banks for the purpose of financial intermediation (Bindseil, 2019), while the two-way movement of deposits from banks to the central bank and from the central bank to banks is generally known as deposit substitution (Bacchetta and Perazzi, 2021). A CBDC is a recent digital innovation, and is considered to be an external factor which banks must take into account in their banking business due to the potential effect of CBDC on bank deposits and the ripple effect on other areas of banking (Ozili, 2022b).…”

Section: Introductionmentioning

confidence: 99%

Central bank digital currency and bank earnings management using loan loss provisions

Ozili¹

2023

DPRG

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Purpose This paper aims to analyse the role of central bank digital currency (CBDC) in bank earnings management and focus on how CBDC activity might influence banks to engage in accrual earnings management using loan loss provisions (LLPs) and the implications for earnings quality. Design/methodology/approach The paper used conceptual discourse analysis to explain the role of CBDC in bank earnings management. Findings Banks will use accruals, such as LLPs, to manage earnings when CBDC-induced bank disintermediation leads to a reduction in bank deposits, a reduction in bank lending and a likely reduction in reported earnings. Bank managers will mitigate the reduction in reported earnings by lowering discretionary LLPs to increase reported earnings. Originality/value The recent emergence of CBDC in the digital currency universe has led to increased research interest on the role of CBDC in corporations and society. This study contributes to the literature by focusing on banks, and examining the effect of CBDC on bank earnings management.

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Understanding the Impact of CBDCs on Financial Stability

Kaur

2023

Concepts, Technologies, Challenges, and the Future of Web 3

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The development of digital banking and the introduction of cryptocurrencies have drawn considerable attention to central bank digital currencies (CBDCs) in the global financial system. Policymakers, economists, and business experts are debating the deployment of CBDCs and their effects on financial stability as central banks examine their potential. In order to investigate the possible risks and advantages of CBDCs for financial stability, this study presents a thorough narrative literature review that critically evaluates a wide range of academic publications, reports, and research studies. This study also highlights the necessity of a user-centric financial ecosystem that incorporates Web 3 concepts. It also explores the significance of carefully constructed CBDC frameworks by looking at the potential impacts of CBDC adoption on monetary policy, systemic risks, and banking intermediation.

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CBDC as Imperfect Substitute for Bank Deposits: A Macroeconomic Perspective

Cited by 4 publications

References 21 publications

Impact of Central Bank Digital Currency (CBDC) Activity on Bank Loan Loss Provisions

Impact of Central Bank Digital Currency (CBDC) Activity on Bank Loan Loss Provisions

Central bank digital currency and bank earnings management using loan loss provisions

Understanding the Impact of CBDCs on Financial Stability

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