Paper claims bank runs not the ‘significant risk’ to financial stability from CBDC once thought

Bank runs are not the significant risk once thought through a central bank digital currency (CBDC), according to a paper published this week by the Treasury’s office on financial research.

According to the Office of Financial Research (OFR), the paper finds that the risk of bank runs is not as significant as initially feared. The paper – “Central Bank Digital Currency: Stability and Information” – focuses on how introducing a CBDC would affect the banking system’s stability.

“First, banks lower their maturity mismatch when depositors have access to CBDC, reducing their exposure to depositor runs,” the OFR said in a release. “Second, the flow of funds into a CBDC provides policymakers with a new source of real-time information.”

The OFR said the results of its study – based on a model it developed – “suggest that a well-designed CBDC may decrease rather than increase financial fragility.”

Central Bank Digital Currency: Stability and Information