We develop a model of financial intermediation with remunerated Central Bank Digital Currency (CBDC) as consumers’ alternative to bank
deposits and an endogenous risk of bank runs. Echoing widespread concerns, higher CBDC remuneration raises bank fragility by increasing
consumers’ withdrawal incentives. On the other hand, it also induces banks to offer more attractive deposit contracts in order to retain funding,
thereby reducing fragility. This results in a U-shaped relationship between bank fragility and CBDC remuneration. We evaluate policy
proposals aimed at mitigating the financial-stability risks of CBDC, such as holding limits and contingent CBDC remuneration.
delegation digital technology technology adoption Central Bank Digital Currency global games Bank run financial stability
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