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Friday Seminar - "Will Central Bank Digital Currency Disintermediate Banks?" - Kairong Xiao (Columbia Business School)

Kairong Xiao, Associate Professor of Finance at Columbia Business Schooll, will present his research at SSE main building (Room A720) on Friday, December 8 at 10:30 CET.

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.

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