An economics paper published by the European Central Bank (ECB) studies a situation where a central bank could experience a ‘bank run’ with a central bank digital currency (CBDC).
There’s a well known blockchain trilemma – the trade off between security, scalability and decentralization. The authors say that central banks face a different trilemma – between price stability, a socially efficient allocation (interest rates), and financial stability (no bank runs). Only two of these three are achievable.
Commercial bank runs result from the so-called maturity transformation of short term deposits into long term loans. Customers place their money on deposit but can often withdraw it on demand. Banks use these funds to grant mortgages and long term business loans. If too many depositors simultaneously ask for their money back, even healthy banks can get into trouble.
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