CBDC could raise bank funding costs – Philadelphia Fed

Choosing an appropriate interest rate could help alleviate problem, say researchers

Federal_Reserve_Bank_Building_Philadelphia
The Federal Reserve Bank of Philadelphia

A central bank digital currency (CBDC) might promote efficiency in exchange, but could raise bank funding costs, researchers from the Federal Reserve Bank of Philadelphia find.

In the paper, Todd Keister and Daniel Sanches model how the introduction of a CBDC affects interest rates, the level of economic activity and welfare.

They find that when a CBDC competes with bank deposits as a medium of exchange, this tends to raise banks’ funding costs and decrease their funding of investment.

“By

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