Central Bank Digital Currency: Implications of narrowing the Traditional Banking System
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2018-08-08
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en
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Abstract
This thesis examines the implications of a Central Bank Digital Currency (CBDC) narrowing the traditional banking system. The traditional banking system gets narrowed when commercial banks main source of funding (retail deposits) move to a CBDC. The implications for the functioning of commercial banks as financial intermediaries is discussed when a significant outflow of retail deposits impairs the ability of commercial banks to issue loans in the first place using their money creation process. The main finding is that commercial banks’ ability to issue loans using retail deposits to fund their lending activity does not only gets affected when retail deposits flow to a CBDC. But that the outflow of retail deposits to a CBDC also affects the ability of commercial banks to rely on alternative sources of funding (wholesale funding). This indicates that commercial banks cannot respond effectively to a significant outflow of retail deposits, if a bank run on retail deposits in a crisis scenario were to occur.
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Faculteit der Managementwetenschappen