Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments December 6, 2022 erstellt
Beschreibung:
Digital currencies provide a potential form of liquidity competing with bank deposits. We introduce stable digital currency into a macro model with a financial sector in which financial frictions generate endogenous systemic risk and instability. In the model, digital currency is fully integrated into the financial system and depresses bank deposit spreads, particularly during crises, which limits banks' ability to recapitalize following losses. As a result, the probability of the banking sector being in crisis or distressed states can grow significantly with the introduction of digital currency. While banking-sector stability suffers, asset price volatility decreases, and household welfare can improve significantly. Despite the potential welfare gains, our theoretical results suggest that financial frictions may limit the potential benefits of digital currencies. The optimal level of digital currency may be below what would be issued in a competitive environment