CEU Economic Seminar Series: Will Central Bank Digital Currency Disintermediate Banks?

Abstract
We estimate a dynamic banking model to quantify the impact of a central bank digital currency (CBDC) on banks. Our counterfactuals show that a one-dollar introduction of CBDC replaces bank deposits by 80 cents on the margin. Lending falls by 25% of the drop in deposits because banks partially replace lost deposits with wholesale funding. This substitution raises banks’ interest-rate risk exposure, lowering their resilience to negative equity shocks. If CBDC bears interest or is intermediated through banks, it captures a greater deposit market share, amplifying the impact on lending. CBDC especially affects small banks, which face expensive wholesale funding.