The U.S. Treasury looks at the potential effects of a CBDC after its successful adoption.
With a stablecoin or CBDC in place in the economy, they argued, bank deposits would “compete” with the digital currency within households’ liquidity portfolios. That would cause banks to reduce the spread between lending and deposit rates by raising interest paid on deposits, leaving them with less equity than they would have without digital currencies present.Households would benefit from the competition between banks and digital currency.
“In our benchmark calibration, in which we calibrate the elasticity between digital currency and deposits to the estimated elasticity between deposits and cash, we find plausible welfare gains on the order of 2% in terms of consumption-equivalent.” If digital currency competed too well with bank deposits, the resulting financial instability could have a negative effect on households, according to the study. Furthermore, even when that is not the case, the digital currencies may not be the best way increase public welfare. “Profit-maximizing issuers in a competitive market” might outperform digital currency. The authors concluded:
“Our results suggest that financial frictions may limit the potential benefits of digital currencies, and the optimal level of digital currency may be below what would be issued in a competitive environment.” The study used dense and advanced mathematics and economic theory to advance its arguments. It appeared on March 22, the same day as the White House
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