This seminar offers an overview of the analysis carried out by various ECB staff members on how the introduction of a central bank digital currency (CBDC) in the euro area could affect bank intermediation and the macroeconomy. A CBDC offers significant potential benefits but it also represents challenges, including a risk of bank disintermediation due to a perceived degree of substitutability between CBDC and bank deposits. The main findings of our analysis can be summarized as follows. First, the estimated effects of digital euro news on bank valuations and lending fundamentally depend on banks’ reliance on deposit funding as well as on the CBDC design features aimed at calibrating the amount of central bank digital currency in circulation. Second, if CBDC design features aimed at controlling the quantity of CBDC in circulation are adequately calibrated, the potential impact of a CBDC on bank intermediation and on the scale and speed of bank runs can be effectively mitigated. Third, while the analysis suggests that the impact of a CBDC on the euro area banking sector is likely to be moderate, due to bank-level specificities, the effects can significantly vary across individual credit institutions. Fourth, a macro-banking quantitative DSGE analysis suggests that the optimal amount of CBDC in circulation lies between 15% and 45% of quarterly GDP. Optimal CBDC design induces significant welfare gains.
- Manuel A. Muñoz (ECB)
1018 WB Amsterdam