The introduction of a Central Bank Digital Currency (CBDC) could potentially lead to lower deposits and lending in the banking sector. This paper presents a model that examines the behavior of households with varying levels of wealth in allocating their assets, including bank deposits, cash, and CBDC. CBDC is found to be more efficient and cost-effective as a means of payment compared to traditional bank deposits. As a result, the banking sector, which operates with imperfect competition, may increase deposit interest rates to prevent a shift from deposits to CBDC.
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Ruedex is focused on researching Central Bank Digital Currencies (CBDCs), Regulated Digital currencies, and assets. CBDCs can bring significant changes to the financial landscape, and thorough research is essential to understand their implications fully.
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