[Vol.28 No.4] Effects of the Introduction of Central Bank Digital Currency on Banking Industry and Macroeconomics

Research Planning & Coordination Team(82-2-759-5490)

Author: Kee-Youn Kang(Younsei University), Inkee Jang(The Catholic University of Korea), Byoungho Choi(Yonsei University)

 In this paper, we construct a monetary model in which commercial banks that have a risk of bankruptcy make deposit contracts with depositors and loan contracts with companies to investigate the effects of introducing Central Bank Digital Current (CBDC) on financial markets and macroeconomics. The introduction of CBDC alleviates a liquidity shortage in the market, which, in turn, mitigates the market inefficiency caused by the liquidity premium of asset prices, and, hence, aggregate production increases. In addition, CBDC alleviates the social welfare cost caused by bank bankruptcy by being used as a means of avoiding the bank's bankruptcy risks. We calibrate the model using Korean macroeconomic indicators, and show that the introduction of CBDC decreases the size of bank deposits and corporate loans by 1.29% and 1.32%, respectively, and increases deposit rate, loan interest rate, and aggregate production by 1.31bp, 1.32bp, and 0.24%, respectively.

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