Topic:

Will Central Bank Digital Currency Disintermediate Banks?

Time&Date: 

  8:30am – 10:00am, November 3, 2023 (Friday)

Speaker:

 Prof. Toni Whited (University of Michigan)

Venue:

Online Zoom Meeting

We estimate a dynamic banking model to quantify the impact of a central bank digital currency (CBDC) on the banking system. Our counterfactuals show that a one-dollar introduction of CBDC replaces bank deposits by around 80 cents on the margin. Bank lending falls by one-fourth of the drop in deposits because banks partially replace lost deposits with wholesale funding. This substitution raises banks’ interest-rate risk exposure and lowers their resilience to negative equity shocks. If CBDC bears interest or is intermediated through banks, it captures a greater deposit market share, amplifying the impact on lending. The effect on lending is amplified for small banks, for which wholesale funding is more expensive.

Biography:

Toni Whited is a professor of economics at the University of Michigan. Professor Whited received her B.A. in economics and French, summa cum laude, from the University of Oregon in 1984 and her Ph.D. in economics from Princeton in 1990, working with Ben Bernanke. Professor Whited has taught in a wide variety of areas in finance, macroeconomics, and econometrics at the undergraduate, MBA, and doctoral levels. She has published over 40 articles in top-tier economics and finance journals. Her research covers topics such as the effects of financial frictions on corporate investment, econometric solutions for measurement error, corporate cash policy, structural estimation of dynamic models, monetary policy, and corporate diversification. She has won a Jensen Prize for one of the top articles in corporate finance in the Journal of Financial Economics and twice won a Brattle Prize for one of the top articles in the Journal of Finance in corporate finance. She is the past-president of the Western Finance Association, and she serves as editor-in-chief for the Journal of Financial Economics.