Paper ID: UTISGAD-2025-5-2-0810
Title: HOW DO CBDCS TRIGGER BANK DISINTERMEDIATION AND SIGNIFICANTLY CHANGE MONETARY AGGREGATES?
Authors: Panshul GUPTA & Vijaya KUMAR
*Click to read Abstract | Full Paper
DOI:10.5281/zenodo.18093550

ABSTRACT

This paper looks at the potential for Central Bank Digital Currencies (CBDCs) to disrupt traditional banking systems, looking specifically on the risks of deposit disintermediation, shifts in the money multiplier, and the possible, more extensive impact on credit creation. By utilising the Chinese e-CNY case study and comparative insights from both, the e-Krona and the Sand Dollar, this paper then develops a theoretical framework that integrates CBDC adoption into the money supply and bank balance sheets. Moreover, empirical data reveals that, eventhough CBDCs can actually undermine bank funding by drawing away deposits, measures to mitigate risks such as zero interest rates, wallet caps, and two-tier distribution could be implemented. Our empirical analysis from China illustrates that a stable deposit growth and a strong money multiplier is possible despite the e-CNY being rapidly rolled out, suggesting that retail CBDCs have the ability to coexist with financial institutions without increasing systemic instability.

Keywords: Central Bank Digital Currencies (CBDCs), Bank Disintermediation, Money Multiplier, Credit Creation, e-CNY (Digital Yuan), Financial Stability

JEL Codes: E42, E51, G21, O31