Bank of Canada: review of CBDC and banking

Researchers from the Bank of Canada review the nascent but fast-growing literature on central bank digital currencies (CBDCs), focusing on their potential impacts on private banks. They evaluate these impacts in three areas of traditional banking: payments, lending, and liquidity and maturity transformation.

For each area, they discuss the lessons learned and identify gaps in the research yet to be fully explored. They also take a broader look at CBDCs and highlight two promising directions for future research. One is to study CBDCs through the lens of industrial organization, exploring issues such as platform competition and business models. The second is the crypto space and its new developments such as stablecoins and decentralized finance.

More research is needed to fill some gaps. For example:

  • Richer models for quantitative and empirical analysis should be developed to estimate the impacts of CBDCs on payment choices.
  • Banks’ funding sources and business models should be further examined to evaluate the quantitative impacts on bank deposits and loans.
  • In relation to bank run risk, the implications of CBDC design and specific mitigation policies, like holding and transaction limits, should be assessed.
  • The market structure of the fast-evolving payment systems and new developments in the crypto space should be better understood.
  • A holistic welfare assessment is needed to evaluate different trade-offs and inform policy decisions

Read the full report

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