Cross-Border Central Bank Digital Currencies, Bank Runs and Capital Flows Volatility

May 6, 2022

Preview Citation

Format: Chicago

Adina Popescu. Cross-Border Central Bank Digital Currencies, Bank Runs and Capital Flows Volatility, (USA: International Monetary Fund, 2022) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Central banks around the world are increasingly exploring central bank digital currencies (CBDCs). This paper investigates the possible impacts of cross-border CBDCs on capital flows and financial stability in a simple open economy extension of a classical model of bank runs, augmented with the presence of a credible foreign central bank, which issues an account-based interest bearing CBDC available to nonresidents. The paper finds that the presence of a foreign CBDC which acts as an international safe asset may increase the risk of financial disintermediation in the domestic banking sector, which can be accompanied by higher and more volatile capital flows.

Subject: Balance of payments, Bank deposits, Capital account, Central Bank digital currencies, Commercial banks, Financial institutions, Financial services, Foreign banks, Technology

Keywords: Bank deposits, Capital account, Capital flows, Capital flows volatility, CBDC, CBDC deposit, CBDC issuer, Central Bank digital currencies, Central bank digital currency, Commercial banks, Cross-border CBDCs, Deposit contract, Financial stability, Foreign banks, Global, Model of bank runs, Open-economy

Publication Details

Pages:

43
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2022/083
Stock No:

WPIEA2022083
ISBN:

9798400209185
ISSN:

1018-5941

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