Abstract

This seminar offers an overview of the analysis carried out by various ECB staff members on how the introduction of a central bank digital currency (CBDC) in the euro area could affect bank intermediation and the macroeconomy. A CBDC offers significant potential benefits but it also represents challenges, including a risk of bank disintermediation due to a perceived degree of substitutability between CBDC and bank deposits. The main findings of our analysis can be summarized as follows. First, the estimated effects of digital euro news on bank valuations and lending fundamentally depend on banks’ reliance on deposit funding as well as on the CBDC design features aimed at calibrating the amount of central bank digital currency in circulation. Second, if CBDC design features aimed at controlling the quantity of CBDC in circulation are adequately calibrated, the potential impact of a CBDC on bank intermediation and on the scale and speed of bank runs can be effectively mitigated. Third, while the analysis suggests that the impact of a CBDC on the euro area banking sector is likely to be moderate, due to bank-level specificities, the effects can significantly vary across individual credit institutions. Fourth, a macro-banking quantitative DSGE analysis suggests that the optimal amount of CBDC in circulation lies between 15% and 45% of quarterly GDP. Optimal CBDC design induces significant welfare gains.

Paper

Three papers will be discussed:

• The Optimal Quantity of CBDC in a Bank-based Economy (with L. Burlon, C. Montes-Galdón and F. Smets), July 2022, Revised and Resubmitted for the American Economic Journal: Macroeconomics.
• Central Bank Digital Currency and Bank Intermediation: Exploring Different Approaches for Assessing the Effects of a Digital Euro on Euro Area Banks (with R. Adalid, A. Álvarez-Blázquez, K. Assenmacher, L. Burlon, M. Dimou, C. López-Quiles, N. Martín Fuentes, B. Meller, P. Radulova, C. Rodriguez d’Acri, T. Shakir, G. Šílová, O. Soons, A. Ventula), May 2022, ECB Occasional Paper Series 293.
• Public Money as a Store of Value, Heterogeneous Beliefs and Banks: Implications of CBDC, (with O. Soons), 2022, ECB Working Paper Series, forthcoming.

The speaker's personal webpage contains numerous links to articles and policy notes that summarize the main findings of these papers.

Practicalities

This event will be a hybrid event. The seminar will take place in Roeterseiland campus (REC) building A, room number A3.01 (Research Seminar room on the 3rd floor), and will also be streamed online via Zoom:

The Zoom link will be specified in the registration confirmation email upon registration for the event.

About the speaker 

Manuel Muñoz serves as a Senior Lead Expert at the European Central Bank. He has been Senior Advisor to the last three Ministers of Economy in Spain. Prior to that he held the position of Head of Service at the Spanish Treasury. His recent research focuses on the macroeconomic and financial effects of central bank digital currencies and climate risks, as well as on the effectiveness of novel macroprudential regulations.

About ACLE

The Amsterdam Center for Law and Economics (ACLE) is a joint initiative of the Faculty of Economics and Business and the Faculty of Law at the University of Amsterdam. The objective of the ACLE is to promote high-quality interdisciplinary research at the intersection between law and economics.