Download This Paper Open PDF in Browser Add Paper to My Library Share: Permalink Using these links will ensure access to this page indefinitely Copy URL The Optimal Quantity of CBDC in a Bank-Based Economy ECB Working Paper No. 2022/2689 76 Pages Posted: 29 Jul 2022 See all articles by Lorenzo BurlonLorenzo BurlonEuropean Central Bank (ECB)Carlos Montes-GaldónEuropean Central BankManuel MuñozEuropean Central Bank (ECB)Frank SmetsEuropean Central Bank (ECB); KU Leuven - Center for Economic Studies There are 2 versions of this paper The Optimal Quantity of CBDC in a Bank-Based Economy CEPR Discussion Paper No. DP16995 Number of pages: 74 Posted: 04 Feb 2022 Downloads 5 The Optimal Quantity of CBDC in a Bank-Based Economy ECB Working Paper No. 2022/2689 Number of pages: 76 Posted: 29 Jul 2022 You are currently viewing this paper Date Written: July 1, 2022 Abstract We provide evidence on the estimated effects of digital euro news on bank valuations and lending and find that they depend on deposit reliance and design features aimed at calibrating the quantity of CBDC. Then, we develop a quantitative DSGE model that replicates such evidence and incorporates key selected mechanisms through which CBDC issuance could affect bank intermediation and the economy. Under empirically-relevant assumptions (i.e., central bank collateral requirements and imperfect substitutability across CBDC, cash and deposits), the issuance of CBDC yields non-trivial trade-offss and effects through an expansion of the central bank balance sheet and profits. The issuance of CBDC exerts a smoothing effect on lending and real GDP by stabilizing deposit holdings. Such "stabilization effect" improves the well-known liquidity services/disintermediation trade-off induced by CBDC and permits to rank different types of CBDC rules according to individual and social preferences. Welfare-maximizing CBDC policy rules are effective in mitigating the risk of bank disintermediation and induce significant welfare gains. Keywords: bank intermediation, central ban...