Central bank digital currency and flight to safety

A model is developed with a novel approach to analyzing banking panics in general equilibrium. Banks may fail, and bank insolvency potentially drives banking panics in which there is payment disruption, in the absence of sequential service constraints. Policy intervention, including deposit insuranc...

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Bibliographic Details
Published inJournal of economic dynamics & control Vol. 142; p. 104146
Main Author Williamson, Stephen D.
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.09.2022
Subjects
Digital currency
Monetary policy
E5
Monetary policy
Digital currency
E4
Online AccessGet full text
ISSN0165-1889
1879-1743
DOI10.1016/j.jedc.2021.104146

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Summary:A model is developed with a novel approach to analyzing banking panics in general equilibrium. Banks may fail, and bank insolvency potentially drives banking panics in which there is payment disruption, in the absence of sequential service constraints. Policy intervention, including deposit insurance and emergency open market operations, is considered. Central bank digital currency tends to encourage banking panics, in part because panics are less disruptive with central bank digital currency than with physical currency. It may be optimal to live with banking panics, as eliminating them may be too costly.
ISSN:0165-1889
1879-1743
DOI:10.1016/j.jedc.2021.104146