Central Bank Digital Currencies: the Effect on the Banking System

Abstract

The long-standing autonomy of commercial banks has been challenged in recent decades by various new concepts, such as open banking and decentralised finance, while the potentially wide adoption of cryptocurrencies, as well as the introduction of central bank digital currencies (CBDC), threatens to disrupt core areas of banking business: deposit collection, loan provision and payment execution, and in turn to create much more fragmentation in the sector. Likewise, CBDCs are in the nascent stage, with the first steps being laid out in the financial system, so the understanding of the drawbacks arising and the expected challenges from CBDC is quite limited. In this research, the scientific literature about CBDCs is analysed, using the extensive and systematic study of available research publications, their categorisation, and summaries. This paper provides a review of CBDCs and an assessment from a theoretical point of view of what kind of impact it could potentially generate for a solid and grounded banking system. In the end, depending on the public demand for CBDCs, and the swift reaction by regulators of the finance sector, the results for the banking sector could be a tense experience.