The Future of Money and the Central Bank Digital Currency Dilemma

In this paper we set out a three-pillar monetary-financial framework to (i) analyze, categorize and compare past, current and emerging means of payment; to (ii) capture their creation and destruction processes through sectoral balance sheet dynamics; and to (iii) identify the inherent risks to the c...

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Autores: Viñuela, Carlos, Sapena Bolufer, Juan, Wandosell, Gonzalo
Tipo de recurso: artículo
Fecha de publicación:2020
País:España
Institución:Universidad Católica de Valencia San Vicente Mártir
Repositorio:RIUCV. Repositorio de la Universidad Católica de Valencia San Vicente Mártir
Idioma:inglés
OAI Identifier:oai:riucv.ucv.es:20.500.12466/6904
Acceso en línea:https://hdl.handle.net/20.500.12466/6904
Access Level:acceso abierto
Palabra clave:CBDC
Structural bank disintermediation
Money creation
Fractional reserve banking
Full reserve banking
53 Ciencias Económicas
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spelling The Future of Money and the Central Bank Digital Currency DilemmaViñuela, CarlosSapena Bolufer, JuanWandosell, GonzaloCBDCStructural bank disintermediationMoney creationFractional reserve bankingFull reserve banking53 Ciencias EconómicasIn this paper we set out a three-pillar monetary-financial framework to (i) analyze, categorize and compare past, current and emerging means of payment; to (ii) capture their creation and destruction processes through sectoral balance sheet dynamics; and to (iii) identify the inherent risks to the current monetary-financial system, also known as the fractional reserve banking system. These risks, which stem from sudden shifts in money demand and supply, are as follows: (I) risk of a cashless society; (II) risk of structural bank disintermediation; (III) risk of systemic bank runs; (IV) risk of currency substitution; and (V) risk of economic and financial bubbles. This framework will guide the assessment of the central bank digital currencies (CBDC), which are considered as the next step in monetary evolution. We will analyze two large groups of CBDC proposals: (i) proposals aimed at complementing cash and bank deposits; and (ii) proposals aimed at replacing all bank deposits with CBDCs. We find that once CBDCs are issued in both sets of proposals, there is always a trade-off between low levels of (I), (IV), (V), risks and high levels of (II) risk. This trade-off could also be defined as the CBDC dilemma, which states that in most CBDC proposals it is impossible to have both of the following at the same time: (1) low levels of (I), (IV) and (V) risks; and (2) low levels of (II) risk. Finally, we suggest that further research on CBDCs should focus on the second group of proposals on a phase-in basis in order to also mitigate the structural bank disintermediation risk and hence to overcome the CBDC dilemma.20252025-10-3120202020-11-2020202020-11-2020252025-10-24journal articlehttp://purl.org/coar/resource_type/c_6501VoRhttp://purl.org/coar/version/c_970fb48d4fbd8a85info:eu-repo/semantics/articleapplication/pdfhttps://hdl.handle.net/20.500.12466/6904reponame:RIUCV. Repositorio de la Universidad Católica de Valencia San Vicente Mártirinstname:Universidad Católica de Valencia San Vicente MártirInglésengopen accesshttp://purl.org/coar/access_right/c_abf2Attribution 4.0 Internationalhttp://creativecommons.org/licenses/by/4.0/info:eu-repo/semantics/openAccessoai:riucv.ucv.es:20.500.12466/69042026-06-19T08:32:07Z
dc.title.none.fl_str_mv The Future of Money and the Central Bank Digital Currency Dilemma
title The Future of Money and the Central Bank Digital Currency Dilemma
spellingShingle The Future of Money and the Central Bank Digital Currency Dilemma
Viñuela, Carlos
CBDC
Structural bank disintermediation
Money creation
Fractional reserve banking
Full reserve banking
53 Ciencias Económicas
title_short The Future of Money and the Central Bank Digital Currency Dilemma
title_full The Future of Money and the Central Bank Digital Currency Dilemma
title_fullStr The Future of Money and the Central Bank Digital Currency Dilemma
title_full_unstemmed The Future of Money and the Central Bank Digital Currency Dilemma
title_sort The Future of Money and the Central Bank Digital Currency Dilemma
dc.creator.none.fl_str_mv Viñuela, Carlos
Sapena Bolufer, Juan
Wandosell, Gonzalo
author Viñuela, Carlos
author_facet Viñuela, Carlos
Sapena Bolufer, Juan
Wandosell, Gonzalo
author_role author
author2 Sapena Bolufer, Juan
Wandosell, Gonzalo
author2_role author
author
dc.contributor.none.fl_str_mv
dc.subject.none.fl_str_mv CBDC
Structural bank disintermediation
Money creation
Fractional reserve banking
Full reserve banking
53 Ciencias Económicas
topic CBDC
Structural bank disintermediation
Money creation
Fractional reserve banking
Full reserve banking
53 Ciencias Económicas
description In this paper we set out a three-pillar monetary-financial framework to (i) analyze, categorize and compare past, current and emerging means of payment; to (ii) capture their creation and destruction processes through sectoral balance sheet dynamics; and to (iii) identify the inherent risks to the current monetary-financial system, also known as the fractional reserve banking system. These risks, which stem from sudden shifts in money demand and supply, are as follows: (I) risk of a cashless society; (II) risk of structural bank disintermediation; (III) risk of systemic bank runs; (IV) risk of currency substitution; and (V) risk of economic and financial bubbles. This framework will guide the assessment of the central bank digital currencies (CBDC), which are considered as the next step in monetary evolution. We will analyze two large groups of CBDC proposals: (i) proposals aimed at complementing cash and bank deposits; and (ii) proposals aimed at replacing all bank deposits with CBDCs. We find that once CBDCs are issued in both sets of proposals, there is always a trade-off between low levels of (I), (IV), (V), risks and high levels of (II) risk. This trade-off could also be defined as the CBDC dilemma, which states that in most CBDC proposals it is impossible to have both of the following at the same time: (1) low levels of (I), (IV) and (V) risks; and (2) low levels of (II) risk. Finally, we suggest that further research on CBDCs should focus on the second group of proposals on a phase-in basis in order to also mitigate the structural bank disintermediation risk and hence to overcome the CBDC dilemma.
publishDate 2020
dc.date.none.fl_str_mv 2020
2020-11-20
2020
2020-11-20
2025
2025-10-31
2025
2025-10-24
dc.type.none.fl_str_mv journal article
http://purl.org/coar/resource_type/c_6501
VoR
http://purl.org/coar/version/c_970fb48d4fbd8a85
dc.type.openaire.fl_str_mv info:eu-repo/semantics/article
format article
dc.identifier.none.fl_str_mv https://hdl.handle.net/20.500.12466/6904
url https://hdl.handle.net/20.500.12466/6904
dc.language.none.fl_str_mv Inglés
eng
language_invalid_str_mv Inglés
language eng
dc.rights.none.fl_str_mv open access
http://purl.org/coar/access_right/c_abf2
Attribution 4.0 International
http://creativecommons.org/licenses/by/4.0/
dc.rights.openaire.fl_str_mv info:eu-repo/semantics/openAccess
rights_invalid_str_mv open access
http://purl.org/coar/access_right/c_abf2
Attribution 4.0 International
http://creativecommons.org/licenses/by/4.0/
eu_rights_str_mv openAccess
dc.format.none.fl_str_mv application/pdf
dc.source.none.fl_str_mv reponame:RIUCV. Repositorio de la Universidad Católica de Valencia San Vicente Mártir
instname:Universidad Católica de Valencia San Vicente Mártir
instname_str Universidad Católica de Valencia San Vicente Mártir
reponame_str RIUCV. Repositorio de la Universidad Católica de Valencia San Vicente Mártir
collection RIUCV. Repositorio de la Universidad Católica de Valencia San Vicente Mártir
repository.name.fl_str_mv
repository.mail.fl_str_mv
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