Technische Universität Berlin
Macroeconomics and Monetary Policy.
CBDC and Cryptocurrencies
The financial stability implications of a retail CBDC depend on how it is integrated into the central bank's crisis-response framework. This paper studies CBDC-based credit policy in a dynamic macro-banking model with anticipated risk of bank runs. The key friction is the capacity-constrained credit policy: following an adverse productivity shock, the central bank may be unable to extend the necessary emergency lending immediately, restoring intervention only gradually. The model shows that this constraint can make self-fulfilling runs feasible because runnable deposit claims remain large relative to the fire-sale value of bank assets. Nevertheless, limited central bank lending reduces households’ perceived probability of a run and improves resilience relative to an economy with a CBDC but no credit-policy channel. This stability benefit does not necessarily raise expected net output, as repayment of inherited central bank loans weakens bankers' net worth when new lending remains constrained. Allowing banks to hold central bank reserves can eliminate the run equilibrium by raising depositor recovery, but may crowd out productive capital. However, reserve policy needs to be designed jointly with equity and leverage regulations.
