美联储-CBDC对金融稳定的影响Financial Stability Implications of CBDC

FinanceandEconomicsDiscussionSeries

FederalReserveBoard,Washington,D.C.

ISSN1936-2854(Print)

ISSN2767-3898(Online)

FinancialStabilityImplicationsofCBDC

FrancescaCarapella,Jin-WookChang,SebastianInfante,MelissaLeistra,AraziLubis,andAlexandrosP.Vardoulakis

2024-021

Pleasecitethispaperas:

Carapella,Francesca,Jin-WookChang,SebastianInfante,MelissaLeistra,AraziLubis,andAlexandrosP.Vardoulakis(2024).“FinancialStabilityImplicationsofCBDC,”FinanceandEconomicsDiscussionSeries2024-021.Washington:BoardofGovernorsoftheFederalReserveSystem,

/10.17016/FEDS.2024.021

.

NOTE:StafworkingpapersintheFinanceandEconomicsDiscussionSeries(FEDS)arepreliminarymaterialscirculatedtostimulatediscussionandcriticalcomment.TheanalysisandconclusionssetfortharethoseoftheauthorsanddonotindicateconcurrencebyothermembersoftheresearchstafortheBoardofGovernors.ReferencesinpublicationstotheFinanceandEconomicsDiscussionSeries(otherthanacknowledgement)shouldbeclearedwiththeauthor(s)toprotectthetentativecharacterofthesepapers.

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FinancialStabilityImplicationsofCBDC1

FrancescaCarapella,Jin-WookChang,SebastianInfante,

MelissaLeistra,AraziLubis,andAlexandrosP.Vardoulakis

BoardofGovernorsoftheFederalReserveSystem

April10,2024

Abstract

ACentralBankDigitalCurrency(CBDC)isaformofdigitalmoneythatisdenominatedinthenationalunitofaccountandconstitutesadirectliabilityofthecentralbank.WeexaminethefinancialstabilityrisksandbenefitsofissuingaCBDCunderdifferentdesignoptions.OuranalysisisbasedonlessonsderivedfromhistoricalcasestudiesaswellasonananalyticalframeworkthatallowsustocharacterizethemechanismsthroughwhichaCBDCcanaffectfinancialstability.Wefurtherdiscussvariouspolicytoolsthatcanbeemployedtomitigatefinancialstabilityrisks.

Keywords:CBDC,financialstability,runs,stablecoins,centralbankliabilities,regulation.

JELclassification:E40,E50,G01,G21,G23,G28

1TheviewsexpressedinthispaperarethoseoftheauthorsanddonotnecessarilyrepresentthoseoftheFederalReserveBoard,oranyoneintheFederalReserveSystem.WethankMichaelKiley,BethKlee,AndreasLehnert,DanielSanches,ChiaraScotti,SkanderVandenHeuvelforusefulcommentsandsuggestions.

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1.Introduction

ACentralBankDigitalCurrency(CBDC)isaformofdigitalmoneythatisdenominatedinthenationalunitofaccount,constitutesadirectliabilityofthecentralbank,andcanbedistinguishedfromothercentralbankliabilities.2ACBDCcouldalterthefinancialandpaymentsecosysteminfar-reachingways.Whetherthesechangesmakethefinancialsystemmorestableormorefragile

willdependonhowCBDCisdesignedandhowthefinancialsystemadjuststoitsimplementation.3

ThispaperexaminesthefinancialstabilityimplicationsofaCBDCunderdifferentdesignoptionsanddiscussespolicytoolsthatcanbeemployedtomitigatefinancialstabilityrisks.Asdiscussedinmoredetailbelow,whileaCBDCcouldinconceptbeheldortransferredbyanyparty,ouranalysisgenerallyfollowsthefourbroaddesignrecommendationsprovidedbytheFederalReserve’s2022discussionpaper:(i)privacyprotected;(ii)intermediated;(iii)widelytransferable;and(iv)identityverified.4Thispaperdoesnotmoregenerallyanalyzetradeoffs

relatedtoCBDCpolicyanddesignchoicesoutsideofthefinancialstabilitylens.

WeexaminethreebroadwaysinwhichaCBDCmayaffectfinancialstability.5First,aCBDCmayincreasethefinancialsector’svulnerabilitytodestabilizingruns.Byofferingasaferasset,relativetoprivateliabilitiesofthefinancialsector,aCBDCmaypresentanattractiveoption

fordepositorsandinvestorstoflytoduringtimesofstress.Somenonbankinstitutions,suchas

2Mostcentralbanksalreadyprovidedigitalliabilitiesintheformofreservebalances,whicharemainlyaccessibletobanks.CommondefinitionsofCBDCdonotattempttodetermineonwhichdimensionsCBDCcouldorshouldvaryfromotherdigitalcentralbankmonies.Therearemanypotentialdesignandpolicychoicevariations.Seeforexample,CMPI2018

/cpmi/publ/d174.pdf

3TheFederalReservehasmadenodecisionsonwhethertoissueacentralbankdigitalcurrencyanddoesnotintendtoproceedwithissuanceofaCBDCwithoutclearsupportfromtheexecutivebranchandfromCongress,inthe

formofaspecificauthorizinglaw(FederalReserveBoard,2022).

4BoardofGovernorsoftheFederalReserveSystem(2022),“MoneyandPayments:TheUSDollarintheAgeofDigitalTransformation,”DiscussionPaper,January2022.

5ThispaperfocusesonfinancialstabilityrisksfromaCBDCduringtimesofstressratherthanonthepotentialeffectofaCBDConbankdepositsandcreditprovisionduringnormaltimes.

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primemoneyfunds,mightsufferlargerormorefrequentrunsinthepresenceofaCBDC.Policytools,suchasCBDCremunerationandquantitylimitsonCBDCholdings,havethepotentialtomitigatesuchrunrisks,complementingtraditionalcentralbanktoolsforemergencyliquidityassistance.Tieredremuneration—wherebyremunerationdecreasesasCBDCholdingsincreaseandcanbeadjustedduringtimesofstress—couldbecombinedwithahardquantitylimitonindividualholdings.TheholdinglimitcouldbechosentopreventsevereandwidespreadrunstoCBDC,whilepaymentsinCBDCcontinuetobepossible.Thecalibrationofholdinglimitsisanimportantbutdifficulttask.GiventheuncertaintyaboutthedemandforCBDC,settingholding

limitsmayinvolveaprocessoftrialanderror.

Second,aCBDCmayweakenfinancialstabilitybyreducingtheabilityofbankstoextendcreditduringtimesofstress.WestudyastressscenarioinwhichthepresenceofaCBDCcausesawithdrawalofdepositsfrombanks,forcingthemtouselessdesirablefundingsourcesdespitenotnecessarilyprecipitatingacrisis.Usingvariousestimatesfromtheliterature,wefindthatfundingcostsand,inturn,therateschargedtoborrowers,mayincreaseby50to250basispointsinstresstimes.Weroughlyestimatethatsuchhigherborrowingratesmayresultinadecreaseof

about1to5percentinC&Ilending.

Third,totheextentaCBDCismademorebroadlyavailablethanotherdigitalcentralbankliabilities,itcouldmakethefinancialsystemmorestablebyprovidingaperfectlysafeassettononbanks,foreigninstitutions,orothersthatmightuseittoenhancetheirliquiditymanagement.Beyonditseffectonthetraditionalfinancialsystem,aCBDCcouldimprovefinancialstabilityinthedigitalassetecosystem.Stablecoinswithdirectaccesstoadigitalcentralbankliabilitywould

bebetterabletopreventormanageruns.

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Ouranalysisproceedsasfollows.Section2presentscasestudiesthatsharesimilarfinancialstabilityconcernsastheonesraisedforCBDC.Section3discussesspecificmechanismsthathavebeenhighlightedineconomicresearchthroughwhichaCBDCmayaffectfinancialstability.Section4analyzesthevarioustoolstomitigatefinancialstabilityrisksintroducedbya

CBDCandtheirimplementationchallenges.6

2.Lessonsfromcasestudies

BecauseaCBDCoffersasafeassettoruntointimesofcrisis,akeyfinancialstabilityconcernaboutitsintroductionisthatitmayincreasethevulnerabilityofinstitutionsandmarketsthatdependonshort-term,runnabledebt.Flight-to-safetyconcernsarenotuniquetoCBDCandhavebeenraisedinseveralrelativelyrecentexamplesbothintheUSandabroad.Wereviewthesecasestoinferlessonsthatarerelevantforthinkingaboutthepotentialdestabilizingeffectsofaflight-to-

CBDCintimesofcrisis.

First,wereviewsimilarconcernsintroducedbypotentialrequestsforaccountsattheFederalReservebystate-charterednarrowbankinginstitutions,planningtopassthroughpartoftheinterestratestheywouldearnontheirreserveholdingstotheirdepositors.Second,weexaminethesimilaritiesbetweenaflight-to-CBDCandaflight-to-ONRRP(theFederalReserve’sOvernightReverseRepurchaseFacility),asanexampleofacentral-bankliabilityavailabletoeligiblenon-depositoryinstitutions,andconsiderwhethersuchfacilityhascontributedtotherunonprimeMoneyMarketFunds(MMFs)duringtheCOVID-19crisisinMarch2020.7Third,weanalyzethe

recentepisodesoftraditionalbankruns,includingtherunonGreekbanksduringtheEuropean

6SeeCarapellaandFlemming(2020),andInfanteetal.(2022)fordetailedliteraturereviews.

7TheONRRPisasupplementarymonetarypolicytoolthatsupportsinterestratecontrolbyprovidingafloorinovernightmoneymarketratestoeligibleinvestors.

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sovereigndebtcrisisandbankingstressofMarch2023,whendepositorsatcommercialbanks

attemptedtowithdrawtheirfundstoholdthemascentralbankmoney.

2.1Pass-ThroughInvestmentEntities

Pass-ThroughInvestmentEntities("PTIEs"),atypeof“narrowbank,”werecontemplatedina2019requestforcommentbytheFederalReserveBoard.TherequestforcommentexplainedthatsuchinstitutionspotentiallycouldseektobegrantedmasteraccountsattheFederalReserveandtobeeligibleforreceivinginterestonreservesbalances(IORB).8Theirbusinessmodelwouldbetoinvestasignificantfractionof,orall,theirtotaldepositsinreservebalanceswiththeFedinordertopassthroughtheinterestthattheyearnonreservebalancestotheirdepositors.TheFederalReserveBoard’spreviousconsiderationofpotentialPTIEsprovidesthemostdirectcomparison

withtheflight-to-safetyconcernsintroducedbyaCBDC.

PTIEs,ifestablishedanddeemedeligibleinstitutionswouldbebusinessesoperatingonnarrowprofitmarginsand,becausetheirinvestmentswouldbeinperfectlysafeassets,theyhavesoughttobeexemptedfromprudentialregulationandpayinginsurancedepositpremiums.Asaresult,therearenorestrictions,inprinciple,onhowbigPTIEscangrow.Tomitigatethepotentialrisksarisingfromtheattractivenessofanearlyunlimitedsafeassetintimesofstress,amongotherreasons,theBoardissuedanAdvancedNoticeofProposedRulemaking(ANPR)torequestpublic

commentwhetheritshouldproposechangestoRegulationD,suchasonhowtodefinePTIEsand

8Withtheeliminationofreserverequirementsduringthepandemic,thereisnowonlyonerateofremuneration,referredtoasinterestonreservebalances(IORB)insteadofaninterestrateonexcessreserves(IOER)..

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onpotentiallypayingthemalowerratethanIORB,includingpossiblyzeroortieredratesfor

differentlevelsofbalancesheldbyPTIEs.9

LessonsforCBDC

NoPTIEshavebeenestablishedsofar,whichwouldhaveprovidedinsightsintohowtheywouldchangethefinancialecosystem.Thatsaid,wecanalreadydrawimportantlessonsforCBDC.TheappealofPTIEsduringtimesofstresswouldaccruebothfromthesafetyoftheirassetsandthepotentialinterestratepaidtotheirdepositors.PayingalowerorzerorateofinterestonreserveholdingsofPTIEs—potentiallyaboveacertainthresholdofholdingsascontemplatedbytheANPR—wouldlowertheinterestthatPTIEscouldofferdepositorsandpotentiallymitigatetheincentivestoruntoPTIEsintimesofstress.ThiscontemplatedproposaltoamendRegulationDsharessimilarcharacteristicstotieredCBDC-remunerationtomitigateaflight-to-CBDC,which

isapolicytoolweexplorelaterinthispaper.

2.2ONRRP,BankDeposits,andMMFs

AnotherarrangementthathasbeencomparedtoCBDCforitspropertyofbeingapotentialsafehavenduringcrisistimes,istheOvernightReverseRepoFacility(ONRRP).TheFederalReserveintroducedONRRPin2014tosupportitscontrolofshort-terminterestratesbyallowingeligiblenon-bankparticipantsintheshort-termfundingmarketstoearninterestonrepurchaseagreements(repos)withtheFederalReserve.Thesetofsucheligiblecounterpartiesisbroadandincludes

MoneyMarketFunds(MMFs),PrimaryDealers,andGovernmentSponsoredEnterprises(GSEs).

9TheAdvancedNoticeofProposedRulemaking(ANPR)waspublishedinFederalRegisterVol.84,No.48on

Tuesday,March12,2019(FederalRegister::RegulationD:ReserveRequirementsofDepositoryInstitutions).TheBoardhadnotdeterminedwhetheranyorallpotentialPTIEsmightbeeligibleinstitutions.

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AlthoughtheONRRPisamonetarypolicytool,itspotentialdestabilizingeffectswerehighlightedearlyon.10Intheory,therearetwochannelsthroughwhichaccesstoONRRPcouldpotentially

affectfinancialstability.

ThefirstchanneloperatesthroughbankdepositorswhomayrunontheirbanksandmovefundsintogovernmentMMFsduringaflight-to-safetyepisode.11Largeinstitutionalentitieshavefundsthattheychoosetokeepintheirbanksortoinvestinshort-terminstruments,balancingtheirneedsforimmediateliquidity,creditriskmanagement,andpotentialreturns.Instress,theincentivetomovebankaccountbalancesthatareabovedepositinsurancethresholdstosecuredinvestmentsincreases.GovernmentMMFsreceivemanyoftheseinvestments.WithoutaccesstoONRRP,governmentMMFswouldinvesttheseadditionalfundsintogovernmentassets,suchasTreasurysecurities,whichwouldputdownwardpressureontheiryields,mitigatingtheincentivetorun.Further,MMFsmaytakeactionstolimitadditionalinflowswhentheTreasuryyieldfallssignificantly.WithaccesstoanelasticONRRP,instead,MMFscouldabsorbmoreliquiditywithoutsuppressingshort-termrates.Asaresult,accesstoONRRPcouldexacerbatepotential

runsfrombankstoMMFs.

Thesecondchanneloperatesthroughnonbankinstitutions,suchasMMFs,thatmaysubstituteawayfromlendingtofinancialornon-financialfirmstowardstheONRRP.MMFs,bothgovernmentandothertypes,mustalsokeepcashonhandforliquidityriskmanagement.Subsequently,theyarelargecashlendersinrepomarkets,substantialbuyersofcommercialpaper,

andotherwiselendinshort-termfundingmarkets.AmigrationofsuchfundstoONRRPcould

10See,forexample,Frostetal.(2015).

11GovernmentMMFsaredefinedasMMFsthatinvest99.5%ormoreoftheirtotalassetsinveryliquid

investments,namely,cash,governmentsecurities,and/orrepurchaseagreementsthatarecollateralizedfullywithgovernmentsecurities.

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amplifyacrisisbyreducingmultiplesourcesofshort-termfundingforfinancialandnon-financialfirms.Thefinancialstabilityrisksofbothchannelsarehigherunderfullallotment,thatis,ifthefacilityisuncappedonaggregate,orifacapissufficientlylarge.12Tomitigatetheserisks,theONRRPimposesindividualcaps,whilethesizeoftheSystemOpenMarketAccount(SOMA)portfolioalsoimposesanimplicitaggregatelimit.Forexample,theinitiallimitontheamounteachcounterpartycouldinvestwassetto$30billion,itwasraisedto$80billioninMarch2021,

andthento$160billioninSeptember2021.13

StresseventssincetheintroductionofONRRPareinstructiveforconsideringthesechannelsandpotentiallessonsforaCBDC.AsshowninFigure1,theONRRPtake-upspikedinMarch-April2020attheoutbreakoftheCOVID-19pandemic.However,flowstotheONRRPduringthatstressepisodewerelimitedoverall,andtake-upquicklynormalizedtolevelsclosetozero.Atthesametime,deposits,includinguninsuredones,increasedatafastrate.14Similarly,thereislimitedevidencethattheONRRPcontributedtothebankingstressofMarchof2023.Whilesomeregionalandsmallbankssufferedacontractionintheirdepositbase,ONRRPtakeupdeclinedinthefirstweekfollowingtheonsetofthecrisis.Theseepisodesindicatethatthereislittleevidencetodateforthefirstchannel,describedabovethroughwhichONRRPhad

destabilizingeffects.15

12AfullallotmentfacilityislimitedbytheoverallsizeoftheFederalReserve’sbalancesheet.InthehighlyunlikelyeventthattheONRRPdemandexceedstheamountofavailablesecurities,awardswillbemadeattherateatwhich

thissizelimitwasachieved(thestop-outrate),withallpropositionsbelowthisrateawardedinfullandall

propositionsequaltothisrateawardedonaproratabasis.See

/markets/rrp_faq

.

13Initiallythefacilityalsohadanexogenouslysetaggregatelimitof300bn,whichwasremovedinDecember2015.Beforeitsremoval,theaggregatecapwasreachedonceinSeptember2014.

14Theincreaseintake-upthatstartedoccurringinMarch2021isnotrelatedtoflight-to-safetyepisodesand,thus,notrelevantforfinancialstability.

15SeeLogan(2021)forasimilarconclusion.Weshouldnote,however,thattheMarch2020episodewasprimarilyaliquidityeventthatfoundbankswithstrongcapitalandliquidityposition.MovementfrombankdepositstoONRRPamidstressdrivenbyconcernsaboutbankcreditqualitymightlookdifferent.

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Figure1:ONRRPandDepositFlows

ThesecondchannelbrieflyemergedduringtheCOVIDepisodebutwasnotquantitativelystrongnorpersistent.AsshownintheleftpanelofFigure2,primeMMFs'holdingsofcertificateofdeposits(CDs)andcommercialpaper(CP)fellwhileONRRPtake-upbrieflyincreasedalongwithTreasuryholdings.Quickly,ONRRPtake-upreturnedtopreviouslevelswhileTreasury

growthcontinued.TherightpanelofFigure2showsasimilarpatternforgovernmentMMFs.

Figure2:MMFsExposures

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Onepossibleexplanationwhythesecondchannel,describedabove,wasrelativelyweakwasbecausetherewereliquidandsafealternatives,namelyTreasuries,yieldingahigherrate.WhiletheONRRPrateandtheyieldonfour-weekTreasurybillsfellaftertheCOVID-19shock,TreasurybillyieldstradedrelativelyhigherthantheONRRPrate,andTreasuriescouldabsorbtheextrademandforsafety(Figure3).ItisconceivablethatthesecondchannelcouldhavebeenstrongerifthesupplyofTreasuriescouldnotsatiatethedemandforsafety,pushingTreasuryyields

down,potentiallytonegativeterritory,andmakingONRRPmoreattractive.

Figure3:ONRRPandTreasuryyields

ThekeydriversoftherunonprimeMMFsweretheCOVID-19shock,theliquiditytransformationactivitiesperformedbyprimeMMFs,andtheadverseeffectofexistingregulationssuchasgatestiedtoafund’sliquidityposition.16TheONRRPmayhavefacilitatedamodestportionoftheoutflowsfromprimeMMFsandinflowstowardsgovernmentMMFs,butotherfactorsmayalsohavecontributedtoorratherfacilitatedtherun.Inparticular,theswitchingcostsforinvestorstomovetheirfundsoutofprimeMMFtoothervehicleshavebeenfoundtobe

importantfactorsforrunintensity.17Forexample,fundfamilieswithrelativelyhigher

16SeeLietal.(2021).

17SeeCiprianiandLaSpada(2020).

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specializationingovernmentMMFssawgreateroutflowsfromtheirprimeMMFsintotheir

governmentfunds,bothforinstitutionalandretailinvestors.

LessonsforCBDC

ThereareatleastthreelessonshelpfulforthinkingaboutfinancialstabilityrisksfromaCBDC.First,addressingthesourceoffundingrisksattheinstitutionallevelmaybeeffectiveatmitigatingfinancialstabilityconcernsfromaflight-to-safety.PrimeMMFsexperiencedsevererunsbutstrongcapitalandliquiditypositionsofbankswerelikelythereasonswhyconfidenceinlargebankswasneverseriouslyshakenandlargeuninsureddepositorsdidnotmovetheirfundsfromlargebankstogovernmentMMFswithaccesstotheONRRP.WhilethestressepisodeofMarch2023doessuggestthatsomesmallerandlesscreditworthybanksaresubjecttodepositorruns,the

roleoftheONRRPinattractingthemislimited.18

Second,therateofremunerationonCBDCduringcrisisiscrucial.Asdiscussedabove,ONRRPtake-uplikelywaslimitedduringthepandemicbecausetheONRRPratewassettozero,makingitlessattractiverelativetoothersafealternatives.BecausesomepotentialCBDCdesignfeaturesmayofferbenefitstoholdersthatarenotprovidedbyothermoneymarketinstrumentsandONRRPbalances,theremunerationrateonaCBDCmayneedtobeconsiderablylowerthaninnormaltimestodiscourageaflight-to-safetyduringacrisis.HoldinglimitsonCBDCmayalso

beuseful.

Third,assuggestedbytheexperienceofprimeMMFduringMarch2020,lowswitchingcostsmayfacilitaterunepisodesonbanksandotherinstitutionsinvestinginmoney-market

instruments.OnedistinctdifferencebetweenCBDCandONRRPisthattheformer,ifintroduced,

18TheFederalReserveissuedanafter-actionreportonbankandsupervisionshortcomingsfollowthefailureofSVB.See

/publications/files/svb-review-20230428.pdf

.

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wouldbedesignedasasettlementassetandthisisnotthefunctionofthelatter.ThepotentialfeaturesofCBDCoritssupportinginfrastructurethatcouldmakeitattractive,suchasenablingfastpayments,facilitatinginteroperability,andprovisionofwideraccesstodigitalcentralbankmoney,coulddramaticallyreducetheswitchingcostsfrombothdepositsandmoney-market

instrumentsandleadtomuchfasterruns.

2.3RecentEpisodesofTraditionalBankRuns

Recently,therehavebeenlimitedcasesoftraditionalbankingpanicsthatcouldhavehadsystemic-wideimplications.TwosalientexamplesaretherunontheGreekbankingsystemduringtheEuropeansovereigndebtcrisisandthebankingstressinMarch2023intheUnitedStates.Theseepisodesprovideagoodexampleofhowarunmaymaterializeataslowpace,withhighswitchingcostsfrombankdepositstootheralternativestoresofvalue,includingphysicalcurrency;orinamatterofadayswhenswitchingcostsarelowanddepositorsareconnectedtooneanother.ThefirstexamplesuggeststhatimposingswitchingcostsfromdepositstoCBDCmayslowthepaceofarun,butitcannoteliminatethemaltogether.ThesecondexamplesuggeststhatreducedswitchingcostsandfastconvertibilityofferedbyaCBDCmayhavethepotentialto

furtherexacerbateruns.

TheGreekcasematerializedamidconcernsover“Grexit”,asGreekbankdepositsfellbyjustover30%from2010-2012andbyafurther25%from2014-2016.Inthisinstance,thedepositrunoffwasslowmoving.MostGreekresidentshadtorelyondomesticbanksorphysicalbanknotestostoretheirliquidwealthandtomakeandreceivepayments,whileonlylargerfirms

andwealthierindividualsalreadyhadorcouldeasilyestablishbankaccountsinothercountries.19

19See,forexample,Artavanisetal.(2019).

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Figure4plotsthewithdrawalofdepositsalongwiththespikesincashholdings.NotethataftertheimpositionofcapitalcontrolsinJune2015,demanddepositsstartedmechanicallyincreasing

andavailablecashstartedmechanicallyfalling.

Figure4:CashandDepositHoldingsduringGreekCrisis

WhileinterestpaidondepositsmayhavebeenareasonwhyretaildepositorskepttheirmoneyatGreekbanks,anotherimportantfactorgoverningtheslowexodusofdepositsfrombankswaslikelyhighswitchingcosts.Withdrawingfundsdepositedatabanktoholdphysicalcurrencyhadconsiderableswitchingcosts.Infact,storingcashinasecurityboxatabankwasexpensive,whileindividualswhowithdrewlargeamountsofcashwereacommontargetofhouserobberiesandindividualassaults.Anadditionalswitchingcostfrombankdepositstocashwasthelengthoftimeneededtoobtainphysicalcurrencyfromabank.Depositorshadtocalltheirbanksseveral

daysinadvancesothatthebankcouldbringintherequiredcash.

ThemorerecentcaseofthebankingstressofMarch2023showsadramaticallydifferent

environment,whichresultedindepositrunsthatwereextraordinarilyfastandlarge.Rose(2023)

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documentsthattherunsonSiliconValleyBank(SVB)andSignatureBankmaterializedinamatterofoneortwodays.IncontrasttotheGreekstress,confidenceinotherU.S.banksremainedstrong.Depositorswillinglytransferreddepositstootherbanks,whichtheywereabletodoquickly.Sectoralorotherinterconnectednessofthebanks’depositorsfacilitatedaparticularlyrapidandcoordinatedwithdrawal.Whiletheconcentrationofuninsureddepositorswasaparticularlysalientissueduringthisbankrunepisode,itunderscoreshowtheavailabilityofasafestoreofvaluewithseamlessandimmediateconvertibilitycanquicklydestabilizebanks.TheintroductionofCBDCmightysimilarlyacceleraterunsthroughanyremovalofpaymentsfrictionsitstransfersystementailsand,perhapsmoreuniquely,throughprovisionofasafealternativethatisnotdependent

oncontinuedconfidenceinthewiderbankingsector.

LessonsforCBDC

WhiletheparallelswiththepotentialeffectsofaCBDCareimperfect,theGreekandMarch2023episodesillustratehowswitchingcostsimpactruns.Inbothcases,conditionspromptedadesiretorunfrombanksthatweredeemedilliquidorindangerofbeinginsolvent.InthecaseofGreekbanks,depositorsthatfacedlowswitchingcoststoreadilyavailablealternativesleftthosebanksquickly.Individualswhofacedhighswitchingcostsstillmigratedfromdepositstothoseotheralternatives,butmoreslowly.Slowerrunscangivepolicymakerssufficienttimetoacttopreventundesirableoutcomes.ThecaseofMarch2023isacautionarytaleofhowlowswitchingcostsandeaseofconvertibilitycanexacerbateincentivestorun,andhowbankrunscanmaterializefromonedaytothenext.ACBDChasthepotentialtosubstantiallyreduceswitchingcostsandwithdrawaltimescomparedtoredeeminginphysicalcurrency.Asaresult,runsonuninsuredorverylargedepositsatbanksorotherfinancialinstitutionsmaymaterializeinaveryshorttime

leavinglittlescopeforpolicyintervention.

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3.Mechanisms

Inthissection,weanalyzethemechanismsthroughwhichaCBDCcanaffectfinancialstability,

focusingonthefollowingthreebroadtopics:

1.HowwouldaCBDCaffecttherundynamicsonfinancialinstitutions?

2.HowwouldaCBDCaffectthecreditprovisionbybanksintimesofcrisis?

3.HowwouldaCBDChelpaddressfinancialstabilityrisksfromstablecoins?

Whileinvestigatingthesequestions,wediscussboththenegativeandpositiveimplicationsofaCBDCforfinancialstability.WediscussseparatelythepositiveeffectsofCDBConstablecoins,

asthedigi