 Hello everyone, also from my side and welcome to this first session of the day, which is my pleasure to chair. I'm Massimo Ferrari-Mineso. I have here the speakers today, Janet Young from Bank of Canada, Maria Rosa Breru, Benjamin Hemingway, and Tim from the University of Liverpool who is joining us shortly on the stage. We have two great papers in this session about the CBDCs and monetary policy transmission. The first by Janet on the past rule of CBDCs to monetary policy and the second by Benjamin on the impact of central bank digital currencies on deposits and the intermarked market. Without taking more time from my speakers, I give the floor to Janet who will present her paper monetary policy pass through with central bank digital currencies. Thank you. So I'm Janet and I thank the organizers for bringing us here for this couple of days and I look forward to the discussion of CBDC which I have been working on for quite a few years now. So this paper is about how CBDC is going to affect monetary policy transmission and it's a joint paper with my former colleague Yu Zhu who is on leave right now at Benjamin University. Oh, sorry. Okay, a very brief intro. I guess we don't have to motivate you while we're doing research on CBDC. So yeah, many of the central banks are researching on this, right? So ECB has been a little bit far, a little bit far ahead because in terms of whether to do the CBDC or whether to issue CBDC or not, but even other central banks even if they are not at this stage yet, they are very active in researching on this topic. Okay, so CBDC, the remuneration as our keynote just had talked about, although it's not an active sort of monetary policy consideration, but it's for sure a very important issue, right? Maybe because it's so important so that's why we're having a very careful with it. Okay, so what I'm going to do today is to see how sort of CBDC is going to affect the monetary policy pass through. In particular, I'm going to talk about how CBDC is going to affect the pass through of traditional monetary policy instruments like the interest rate on reserves. Okay, and I think I will be focusing on that part at first and I have a little bit of time. I will also talk a little bit about how the pass through of CBDC, the interest on CBDC itself. But as I guess you guys, it's probably not the most important question, but I think we need to know that, I think beforehand and how the interest on reserve is going to affect the pass through of CBDC itself as well. Okay, so I'm in the literature. I think I left one paper out there. I just realized that last night, but I don't want to bother Nina to up this slide. So yeah, so we have a few papers on the interaction between CBDC and the monetary policy transmission. So there are a bunch of other papers and we are going to see like the micro economic consequences. So these ones are then like more related to literature. Okay, and the one I left out is the paper by Rod Gerrard and his co-authors. So we'll add that for sure. Okay, so the main takeaway is that it's kind of a serious consideration in a sense that, so at least from our funding is that we find that the CBDC and traditional monetary policy instruments are going to be in each other's way, they tend to be in each other's way. So if we have a CBDC in the world, okay, we need to have some actual considerations about monetary policy implementation. And also the, so the mechanisms, how they interact with each other, it depends on the mark structure of the banking sector, especially on the deposit market. And that's sort of also intuitively because we know the banking system plays a very important role in the in the process of a monetary policy transmission. Okay, and because of that the policy coronation is required to achieve some policy goals. Okay, the environment is pretty brief. So this is based on our old paper, maybe not too old. I guess everything about CBDC is not too old. So we, so we have, so the, it's even horizon, we have basically the, so every period has two sub-markets and a centralized market and decentralized market, and I will explain that a little bit more later. And we have four types of private agents, and we have buyer and sellers who are infinitely lived, and we have entrepreneurs and bankers, they live for two periods. Basically, they're born in a centralized market, and then they go through CM, DM, and then they're going to die in the next, in the next CM. Okay, so the DM is where the payments are going. Okay, so so we have buyers who want to consume, but they don't produce, and I have producers who are the reverse. Okay, they can produce, but they don't consume. And there are some frictions in the economy such that we need a means of payment. Okay, for means of payment, we have three choices. Have cash, bank deposits, as we will have now, and a CBDC, we have, that will be another alternative. Okay, the centralized market is centralized. There's no frictions there. I mean, technically, you don't need that means of payment there. For us, it's kind of a, kind of like a technical reason why we have that, because it makes the model very attractable. Okay, so there, everybody can trade in a radio market. So the good is X, and buyer sellers, they have a linear utility, or this utility from per-producing. So you can consume, or you can produce. If it's produced, it's going to be negative utility, and if you consume, you're going to be a positive utility. Okay, and then we have also the young entrepreneurs, they are born, and they have a productive technology, but they cannot produce when they're young. So what they need is, they need to borrow some money from the economy, and it's, as I said, it's from the bank. So they're going to borrow the money, and they're going to do the production, and that production is going to materialize in the next CM. Okay, and they only consume when they are old. Okay. For the central bank, so we also have the bankers, I'm going to have the next slide for that, because the banks are the most important public players in the economy. For policy, we have it kind of a simple, so we have the central banks, and we have the fiscal authority as well. For central banks, they issue reserves and CBDC. So these are two forms of central bank liabilities. Okay, and they choose the growth rate of these two liabilities at the same time they also set an interest. Okay, so I have the interest on reserves, I also have the interest on CBDC. Okay, and then for the fiscal side, it's very straightforward, not very complicated, not very sophisticated at all. So basically, they just do a lump sum transfer, transfer, or tax, basically to accommodate the monetary policy. Okay, so the banks, so they are very important players, so they are also sort of live for two periods. So when they also consume when they're old, but they cannot produce X. So what they do is they can provide some intermediation for the economy. And they also provide payment services, because bank deposits can be used for payments as well. Okay, so take a look at their sort of balance sheet. As we have the assets and liabilities, the bank issues bank deposits. Okay, and the deposits are going to be used by households for payments. On the assets side, we are going to have loans, so that's that will be issued to entrepreneurs to finance their projects. Okay, and of course the bank can also hold some central bank liabilities as a form of investment. Okay, so it can be reserves, it can also be CBDC. So if we have CBDC, CBDC, we assume that the bank can also hold a CBDC, okay, on their balance sheet, so as a form of assets. Okay, and so the households, they're going to generate the demand for deposits, so basically that's going to be the right-hand side. And the entrepreneurs, they're going to generate demand for loans. So the little eyes, they are the deposit rate, so ID is deposit rate, and that's the loan rate, D for deposit L for loans. And there's a reserve requirement. Okay, this can be fulfilled with either reserves or CBDC, so that's our assumption. The paper had, we've got a previous version and we assume that banks cannot use CBDC for reserves, but at the conference, I think zero, zero is not what it is, I think, online. So he suggested that probably it's more reasonable to make the other assumption, so we changed that since August. Okay, so what I'm going to do, so I will first talk about how CBDC affects the past zero of interest on reserves. And for the past zero, we'll be focusing a little bit narrowly focused, we'll be focusing on these just deposit loans, the rates, and also the quantities. Okay, and then, so as I said, the market structure could be important, so I will first talk about the competitive deposit market, and then I'm going to talk about the non-competitive case, and in our model we use coronal competition to model that. And then if I have time, I will go through the path through of CBDC, interest on CBDC itself, and how that's affected by the interest on reserves. And then I will do a little bit of policy correlation as well, maybe there are more things we can do, but I'll show you one case where the two rates are coordinated in a certain way. Okay, so the first path through of interest on reserves, so I will first just align the case without CBDC, and then show how the CBDC is going to affect things. Okay, so first we will talk about the competitive banking. So for the banks, the problem is kind of a simple there. So basically, yeah, they invest on loans, so that's ILL part, and then they also invest on reserves, that's Z, okay, I use IR to denote the interest, and the minus, that's a liability side, so the D is deposit, and you pay ID for that, okay, so that's basically the bank's profit, okay. And the two constraints, the first one, it's just a financial identity, and the second one, it's just a reserve requirement, okay, so the CHI parameter, so that's the reserve ratio, okay. So yeah, we solved the bank's problem, and then we can combine it with the house of the demand for deposits, and also the entrepreneur's demand for loans, and then we can basically solve the equilibrium, okay, I'll show you what the equilibrium looks like, okay. So for the path through, I'm going to show you, as I said, just the four things, okay, the first column, the first column, that's the, okay, the first column, that's the rates, look, I have an iPad here, so the first column, they're the rates, and the top figure, that's deposit, and the lower panel, that's for loans, okay, and the second column, there are the quantities, okay. Actually, most of the time, you can just focus on the first column, because the second column, basically that's going to be pinned down by the household demand for deposit, and the entrepreneur's demand for loans. Basically, you have the first column, you're going to get the second column, okay, so most of the time, I think, without loss of generality, we can just focus on the first column, okay, and on the vertical axis, I have the interest down on reserves, okay, so when I talk about the path through, I mean how the deposit rate and the quantity, of course, is also loans, they are going to respond to changes in the interest on reserves, okay, that's what I mean by definition of a path through. Okay, so without the CBDC, okay, it's going to have, we're going to have like two cases of two regimes there, okay, so depending on what the interest on reserves is, okay, for low interest on reserves, okay, then the reserve requirement is going to bind, so remember, the bank can make profits by making loans, but if the reserve rate, interest on reserves or reserve rate is the same thing from my wording, so if the reserve is too low, okay, then basically holding the reserve is kind of a cost that the bank has to bear to issue loans, okay, and so the reserve requirement is going to bind, and then the reserves and loans in some sense are not compliments, right, to make loans, you have to hold reserves, okay, and then if we have higher IR, IR, that's the interest on reserves, if that's increases, okay, intuitively it's going to decrease the cost of issuing loans, okay, so in other sense, case is going, so and then we have a companion banking, right, so facing a lower cost of issuing loans, the bank is going to pass on that benefit to, to entrepreneurs as a lower loan rate, so that's why, that's why if you look at lower, lower panel for the rate, then the first column, okay, it is decreasing, okay, and for loans, they are the flip side, basically, okay, so if they get loan rate is lower than the loans, they are going to issue more loans, okay, and okay, so once they, once the interest goes, so once the, once the interest is higher, okay, at the high IR, then at some point, the reserve requirement is going to become loose, okay, and in that case, reserves and the loans are going to become substitutes, okay, and then the, basically these two performance assets are going to earn the same rate, okay, so if the loan rate, if the reserve rate is higher, then the bank is going to move some funds from loans to reserves, okay, and so the loan rate is going to be higher, for deposit side, okay, the depositor is going to benefit, because basically the bank has a higher rate turn on their asset side, okay, so in either way, the bank is going to pass on the benefit to, to the depositor as, as higher deposit rate, okay, so deposit are going to increase, so that's, that's without the CBDC, okay, so with CBDC what is going to happen is, is that, so as I said, so CBDC is going to affect the economy, like through, through, through things, because assume it can, we assume that CBDC is a purpose substitute for bank deposits as, as a payment instrument, so basically the CBDC, so CBDC rate is going to form a lower bound, okay, on the deposit rate, okay, and at the same time, the banks can hold CBDC as a form of asset, okay, so and, and then basically the bank is going to, they can hold central bank liabilities as, as I said, so the effective rate for that is going to be basically the max of IE and IR, okay, now if IE is higher, then the, the, the bank it will be more willing to hold CBDC as reserves, instead of reserves, okay, so there are three ways CBDC can affect the economy, just asking the question whether it's going, is it attractive, it's attractive for the, for the banks, is it attractive for the, for the depositors, okay, okay, so introduce the CBDC, so basically this figure, the blue, the blue lines are same as before and then the, the, the red, red figure, red line, so they are, they are where CBDC is introduced, okay, so, so in, with competitive banking, introducing CBDC is sort of a pretty straightforward analysis, okay, so basically one, one thing we can first conclude is that with competitive banking, okay, then CBDC is not going to be attractive as means payment for depositors, why, because as I said, so for the bank, they are, let me, they have access to the central bank liabilities, right, and then the, the, the return for that is, is, is IR, right, so that's at least the CBDC rate, so for the depositors or what they want to, if the bank is already offering pretty good, good return, so you don't want to hold CBDC, right, and so basically the effect is only through, basically the, the bank's asset portfolio decision, okay, so if the CBDC has a high return, then the bank is going to hold CBDC as a form of central bank liability instead of reserves, okay, so that's why, so for lower, for lower IOR interest on reserves, we're going to have the flat parts, so basically, yeah, basically the banks hold, hold CBDC instead of reserves, so that's why, yeah, CBDC here, like MUTE, they pass through of, of interest on reserves, kind of a, kind of straightforward way, okay, okay, and then, and I move on to CORNA, so the CORNA is, it's basically, the bank is solving the same problem, it's the only things now, look at the, sort of, the red thing in the, in the brackets, so that DJ is bank J's deposit, okay, so bank has market power, so DJ is going to affect the, the market deposit rate, okay, so the bank is going to consider that, and, and that's, that's the only thing that, that changes basically compared, compared with competitive case, okay, and so I'm going to, yes, I think for, for some results, we can, we can, we can give some qualitative, qualitative results, right, but we cannot solve, for example, as I explained it, we cannot say, okay, the deposit is going to be a certain form, we cannot do that, but for, yeah, for a lot of results, we can, at least qualitatively, we can show some, compare the statistics, yeah, okay, so, so again, so look at the, so the, the blue figure that's without CBDC, and the, the bashed red lines, and they are with CBDC, and without CBDC, it's very similar to the competitive banking case, qualitatively, of course, qualitatively, it's very different, because the bank, the banks have market power, right, so, so they will still pass on, if there's a change of international reserves, the bank is still going to pass on the effect of that to, to depositors and entrepreneurs, but the magnitude is much smaller because they have market, market power, right, and if we introduce CBDC, things are kind of quite, quite different now, so now, so now, because they, without the CBDC, the bank, if they have a lot of market power, they may offer a low deposit rate, okay, so now with CBDC, actually, if you introduce a CBDC, even not with a moderate CBDC rate, it may, it may become appealing to the depositors as the means of payment, right, so that's, that's a new, new, new force that, that you are going to have, if we have, okay, that's good, if we have the, we have the, the back to power on the deposit market, okay, so, so as you can see there, so for low interest on reserves, okay, and the bank tends to also offer across a low deposit rate, okay, so in that, in that case, we introduce CBDC, okay, and then depositors are going to find it very appealing, right, so the banks are going to match, match the CBDC rate, okay, so, so that's why you see the flat part, the first graph, that's the deposit rate, okay, it's going to be the height of that red line, so that's basically the CBDC rate, okay, so CBDC is going to determine the deposit rate, and if at the same time, if the reserve requirement also, also tight, and then the CBDC is going to basically the, the rate of CBDC is going to dictate the whole economy, so long side, long side as well, okay, so that's the, that's the flat part of every curve, okay, and then you also see for the deposit curves, they are flatter, longer than the, than the low curves, okay, that's okay, you know, you have the change of the, so that, that increasing red dash line in the, in a long, in a long rate curve, okay, that's where the reserve requirement becomes loose, okay, if, if that's the case, then basically we'll have a kind of little bit of dichotomy, CBDC rate dictates the deposit side, and then the reserve rate is going to determine the long side, okay, so that's the, that's that part, and of course, when CBDC, sorry, when interest on reserve is very high, even with market power, okay, the bank is offering a pretty appealing deposit rate, then CBDC is not going to be used anymore, so that's why the blue and red, they join each other, okay, so yeah, with that, I can do a very quick summary of the effect of CBDC on the path through, so, so without the CBDC, the path through the interest on reserve depends on whether the reserve requirement is binding or not, okay, and also the deposit market structure, okay, so, and we can have full path through to long rate when the reserve requirement is loose, okay, the bank is just equal, basically equating the long return under the interest on reserves, and we can also have a full path through, okay, if plus that, we also have competitive banking, okay, however, if we have either the bank, the bank secretary is not competitive or the reserve requirement is binding, then we tend to have some weak path through, okay, of the interest on reserves, okay, and then if we introduce CBDC or general picture that CBDC is going to weaken the path through of interest on reserves, okay, and the effect depends on the deposit market structure, so as I mentioned, that's fine, I think, with a competitive case, CBDC can melt the path through of interest on reserves, that's just because of the asset allocation effect, okay, and if we have a coronal, like, or non-competitive deposit market, and then the weakening is because the deposit find CBDC or an appealing payment method, okay, so in that case, if the reserve requirement binds, then basically CBDC is going to dictate everything, right, so that completely like a milling, and if R is loose, then the interest on reserves can still affect the long side, okay, so I think my time is over, as I said, so this probably is the most important part of the paper, and for the completeness, we also talk about the path through of interest on, sorry, the interest on CBDC, but as I said, so policy makers are not going to consider that as a very active policy choice, at least not at the beginning, but it is useful to know what to expect, so that's why we have that section, okay, so I will go very quickly, just there, conclusion, right, so basically we're saying that this, so CBDC's interest on CBDC and an interest on reserves, they tend to be in each other's way somehow, right, so if we really have a CBDC into the economy, as a policy maker, we'll have to consider, we'll have to consider how they are going to affect each other, so when we do the mantra policy, so that's the main message, okay, and we may need some coordination between the two, okay, now stop here. Thank you very much, Janet, before opening the floor to question, I would like to ask Marianne to come in on the floor for her discussion of this paper, thank you. Shall I wait for my slides? Yeah. Slides are coming, good. Great, so thank you very much to the organizers for inviting me to discuss this very interesting paper, so I have to, with this, sorry, okay, so there's now a growing literature on CBDC, but there's not that many papers actually trying to study precisely the path through of monetary policy and how that will be affected by CBDC, so this paper contributes to that. I think by now, the debate on whether CBDC is desirable or not is not totally conclusive, there's still a lot of discussion, people are not totally convinced, and I think one view in this debate is whether, you know, the fact that if we are going to do this CBDC, if we are going to issue CBDC, then maybe we have to do it in such a way that it's a game changer that really changes things, or it's better to refrain from that, that was a view that was exposed, for example, last week at the Riksbank in the conference, so I think that the path through dimension that this paper studies is a key dimension on that because if, you know, the path through of monetary policy becomes more effective for monetary policy, this could be a dimension that provides incentives to central banks to go with that and do it in such a way that it is a game changer. This paper precisely shows that CBDC can be a very powerful tool for the central bank in terms of a path through of monetary policy. So very quickly, the setting is, I mean, the main ingredients, the authors consider perfect competition in the loan market, imperfect or perfect competition in the deposit market, and CBDC is a perfect substitute to deposits, and then the central bank, which is a consolidated authority actually, is going to have as policy instruments the reserve requirements, the interest on reserves, and the interest on CBDC. So I'm not going to go through all the cases because Janet explained that pretty in detail, just let me tell you that if you consider competitive deposit market or Cournot deposit market, essentially the fact of introducing CBDC is going to have an effect, and I mean, it's going to may render the interest on the reserves a bit useless, actually, because it can be that doesn't have the effect if the interest rate on CBDC is high enough, which are the red cases, I put in red. So it can also happen that in particular if the interest rate on reserves is very low, the path through of the interest on reserves is totally muted, or even for intermediate cases of the level of the interest on reserves can happen that the interest on reserves has an effect on the loan rate at the retail level, but the deposit rate is totally determined by the interest on CBDC, which is the right, the perfect substitute for deposits. So overall, the CBDC is going to tend to weaken the path through that the central bank can have via the interest on reserves. And if you consider how the interest on CBDC is going to affect the economy, well, overall, I would say, for the sake of time, that the authors show that the interest on CBDC is pretty powerful in particular for determining the deposit rate at the retail level. So my comments, so first of all, I think that something I would have liked to see more discussed in the paper is the effect on the loan rates. I mean, the authors have a very stylized and elegant model, and somehow I feel bad that maybe my comments go in the sense of making this model less stylized, and this is not nice, I agree. But actually what I think is that when we think of CBDC, you typically think that more or less you can see how the interest on CBDC is going to affect the interest on deposits, because then it's a perfect substitute, and deposits have like an outside option that is totally given by the CBDC. What is less clear is how CBDC is going to affect the loan rates for me. And so the authors study the deposit market in more detail, in the sense that they consider a competitive market, a Cournot market, where the loan part is actually considered as a competitive setting. But for me, it would be more interesting to study this imperfect competition in the loan market, because then we want to know how the central one can affect these rates, given that there's no this outside option channel that we have for the deposit rate. So here they have some insight, for example, the fact that the conditions on the loan market are going to be dependent on the level of the reserve rate. There are several results, but I think it would be interesting to explore imperfect competition. There's papers have done that, for example, Header Hall, and they show plenty of evidence that this market is not competitive, but they don't have CBDC. There's another dimension which is not in the paper, which is about the speed. I think that CBDC could actually affect the time that changing the policy rate takes to affect retail rates. There's this dimension of time, right? You know, using CBDC could speed up the process. This is, of course, not present in the paper, because it's stationary equilibrium, adjustments are totally costless, perfect, and so on. But, you know, we have evidence that the path through is pretty slow. For example, there's a paper by Mesera Nipman, a short paper that shows that there's significant proportion of a path through that occurs pretty quickly. But then, still when you look at one year, for example, path through is still incomplete, and rates of path through for overnight deposits are below 50%. Even after one year, they look at ECB data for 20 years. So I think that's another interesting dimension that could be explored. I don't know how to do that in the model, but I think it's something that could be very, very interesting. So they also show these authors that the path through is different for the deposits held by firms or by households. So it's related to the fact that bargaining power could not be the same for these agents. That's not what we have in the paper, but the paper stresses the bargaining power as an important, I mean, the imperfect competition as an important part of the path through process. I have, you know, some questions about the reserve requirements, the role that they play in the paper. Well, first of all, there's no motive, explicit motive for reserve requirements in the paper, which may be okay. But I was wondering, maybe you can provide in the paper some examples what happens if the reserve requirements increase, decrease with the path through, because we would like to, you know, see the interaction with CVDC of reserve requirements. And actually, you know, this CVDC, we're going to have some papers may affect financial stability. That's part of the discussion. So there's no reason to think that if we introduce CVDC, reserve requirements are going to have to be the same as they are now. Maybe they'll have to be higher. If we think that financial stability may be more of a concern or lower, if we think the opposite, I don't know. But I think that it would be nice to see this interaction, actually. So also what if loans are risky? Also I was thinking whether you can differentiate remuneration of excess reserves or required reserves, which could also be a dimension that affects the path through. And then I have a couple of questions. For example, what is the role of time deposited in your paper, which I've seen in the environment, but then didn't see in the analysis, but a detail. I was wondering, well, you don't have an interval market by now in the paper, which is nice in the sense that you have this very stylized model, and there's other papers that are doing that. But I was wondering, I mean, this can also affect the path through. If you think that the interest on reserves are going to affect the rate in the interval market, and through this they're going to affect the rates at the retail level, I was wondering whether you could think or at least discuss this a bit in your paper. Because then the path through would depend on the institutional details of the market. For example, there's a paper by Afonso and Lagos that showed that for given policy rates, the Fed funds rate depends on the relative bargaining powers of borrowers and lenders and these type of aspects. Also, I think that would be nice to study the relative effectiveness of the interest on reserves and interest on CBDC. That would depend on the functioning of the interval market actually, I think, in the policy discussion. So that's something that would be interesting to see as well. Another point is about the fiscal cost of CBDC. So in your paper you have a fixed inflation target, but suppose that you have no taxation power as you have now in the paper. I mean, Fabio Bonetta was discussing before the role of senior rates and whether we should see CBDC would be in order to have, I mean, that the central bank profits from senior rates. So the idea I think is to have positive profits and not negative profits. So I was wondering if you have this constraint on how much the central bank can pay on reserves, can pay on CBDC, how this may affect your analysis. I think that would be interesting to incorporate to your model. And I'm very quick now. So just to conclude, so I think this is a very interesting paper that proposes a different angle on CBDC and at the same time has some continuity with the previous work because it seems to be the case that CBDC is more effective or more useful when there's low competition in the banking sector. A side comment, I think it would be nice to have graphs that compare the competitive and current, so that we can see the level of the rates in the same graph that will help understanding. So very elegant model and there's a lot of questions that I thought about that I think would be interesting to explore. Thank you very much. Thank you a lot for this discussion. Before, maybe before answering we can collect a couple of questions from the audience online or in presence. We have one from Livio and one from the other gentleman over there. Okay, thank you. I'm Giuseppe Ferreira from Bank of Italy. So it is very elegant and very nice, the model. And let me start by saying unfortunately it focuses a lot on reserve requirement as a binding constraint. While we know the central bank at least in advanced country never use the reserve requirement as a constraint. They provide reserves fully elastically to satisfy the reserve requirement of banks. So my question, so in a sense I will buy the part where it is never binding the constraint. But maybe another way of introducing some constraints is about thinking more about regulation. So maybe LCR or other type of constraint. My suggestion is really do not use the reserve requirement because it is never binding in a sense. We can collect also the question from Livio. Thank you so Livio. So I have a question which is not really on the model but more generally. So as far as I remember the Andolfatto paper, so basically the increased competition for deposit is good. So the fact that it is welfare enhancing in a sense. But I've seen now several papers arguing that actually banks having a deposit franchise is actually stabilizing. So for example, there's been a couple of papers saying essentially that the fact that banks have some rents and so they pay the deposit much below. But in particular interest rates go up, is a stabilizing force. So I was wondering, so these papers kind of challenge the view that the more competition is better because basically so the banks have more franchise value and so they are better able to perform their role even when interest rates go up. So I was wondering whether kind of your model, your results kind of speak to this question. So whether you know the welfare effects of having more or less, because this of course has an impact on the welfare effects of CBDC as well. So that was my question. Thank you. Well first thanks Mariana a lot for the for the thoughtful discussion. And yeah I think I mean I agree on all of that. So there are some some extensions we can we can talk about and yes with a little bit sacrifice of elegance. But it's all of the things I think are worth worth exploring. I sort of like the idea of the the time dimension of metropolitan pass through. Maybe we can do a paper together and I'll have afterwards. The conference is a good good good place to to get a new new projects going. So now when we haven't thought about it before and I think it's very nice. So yeah I mean in this paper we're sort of emphasizing the mark structure for the deposit market right so but the interbank market for example itself can also be be important in terms of monetary policy pass through how that is going to sort of combine with CBDC. I think we're going to see a little bit. I think I'm going to say a little bit maybe tomorrow's one paper probably we'll talk about that a little bit interbank market more more explicitly modeled. So I'll look forward to that too. And yeah other yeah other ones we say along side it's it's true. So we want to sort of focus on the deposit side and then the the reason why we did that because we think CBDC is a it's a retail retail payment instrument right. So it competes very directly with the bank deposits. So as as a means of payments that's why we think the effect will be coming very strongly from the deposit side. For the long side at least we did it in our the other paper the earlier paper. So we didn't do the competition I think as Alan has paper did as we we we can happily use in Cornell in the in the on the long market. So a lot of the a lot of the results to go through but of course that quantitatively is going to make some difference for sure right. So how um yeah me uh so the probably the the the qualitatively probably it's going to be some very in terms of how CBDC is going to affecting it's going to affect uh pass through um yeah but for very serious cognitive work that that probably should be should be taken into consideration. Yeah um about the reserve requirement Marana uh mentioned that and some also mentioned that. So uh so in that straw we could we could explain even more in the paper. So what what do we mean by by that I guess we uh as as our thing is that we're not taking that over literally. So uh I guess a lot of a lot of uh countries they do not have uh like a reserve requirement for example Bangalore can sorry in Canada we do not have the I mean the the reserve requirement explicitly it's it's zero right so the banks don't have to uh do reserves. But if you look at um but the thing is that that's not some paper uh you do not have to uh take any uh you don't have to have any reserves. But the fact that the banks are holding a lot of uh reserves on their balance sheet okay that means that it's still probably scarce and and it's so it's it could be other other reasons so it could not it may not be imposed by by the central bank for regulation purposes but it could be using reserves for for other purposes and I think in in in reality they still I I think it's still kind of scarce in in that sense okay um but yes I agree that we can we we should we can explain a bit more but yeah maybe for us it doesn't matter whether it's a reserve requirement or LCR I think they work in the same way right so uh but uh yeah some explanation of that will be useful um for welfare um welfare so so this paper for now we we do not look at the welfare at this time being it's a kind of a pretty uh like a kind of a factual uh uh uh uh uh exploration. So for CBDC the welfare implications are quite a complicated I guess depending on what what I mean there are many factors that you can you can think about so uh uh so increase for example if CBDC um can increase the competitiveness of the of the deposit market it could be welfare improving in a sense that it sort of uh through it sort of counteracts the market power by the banks right so in that sense it could be welfare improving but it also depends on a lot of other things right so for for example there could be there you could be maybe the banks are providing too much intermediation that could be also possible depending on the sort of the the the the the the the um so other factors in the economy so uh now in that sense if you you crowd out it's a good thing it could be a crowding out it could be even a good thing so for welfare implications are I would say you have to be very very um very careful about the overall welfare effect but what we can do in our own papers it would be at least we see in the context of this paper like what are the implications for welfare that's something we can we can talk about but like if we want to see something about like you know the overall effect of CBDC that's that's just a in my view it's like a very complicated matter I'm not so sure whether we can actually do that at all it could be you are achieving a good a policy project about one dimension but you are rehearsing another dimension and then if you have this competing um uh effects then which one is more pertinent like more dominant that can it be a judgment by the policy maker right I was saying okay this question is more more serious so that's why I put a more weight on that so not that but at the end also you know there was a lot of judgment from the from the uh the city makers too um yeah but uh yes I agree that and with that too yes thank you thank you Janet and thank you to the audience um I fear we are short of time we have to move on to the to the next paper now uh by Benjamin Hemingway from Bank of England on the impact of central bank digital currency on bank deposit and the internet market uh Benjamin you have the floor thank you while I wait for my slides to appear this is work I did while I was at the Bank of Lithuania so the usual disclaimer applies twice for both my current and previous institution so again in terms of motivation hopefully we don't need too much motivation in this room for why we want to look at CBDCs so instead I'll focus more on on what I do so I focus on the effect of CBDC on the market for retail deposits so I abstract a lot from some of the other more complicated parts of the CBDC debate but I focus on the impact of CBDC on bank settlement through standing facilities in the interbank market so there'll be more papers on the interbank market tomorrow but you know for me this is kind of one of the key channels and the research questions I had in mind when I started this paper was what happens to the market for retail deposits so this goes back to kind of Janet's paper where there's this market structure component of CBDC the second is can the CBDC remuneration rate be an effective monetary policy tool so this was you know talked about a lot in kind of the early literature it's kind of fallen to the wayside now so I just had a little bit more evidence that that was a good decision by policy makers not focus on this and the third is does CBDC affect transmission of the policy rate so essentially what I do in this paper I model CBDC as a closer substitute to bank deposits the money right so banks now face additional competition I assume that CBDC is exchangeable on demand for deposits which means there's going to be additional settlements between the banks and the central bank and the kind of key assumption I make is that the central bank isn't going to directly you know use the interbank market instead these increased settlements are going to lead at least in the model to increase use of the standing facilities and this is going to generate additional costs for the banks so the model features I have this imperfect competition between a finite number of banks and a CBDC I delved into my old iotex books and I have this salad circle model which is essentially a spatial competition model where there's product differentiation so there's two dimensions of competitions if you like there's price competition for deposits so banks can alter the interest rate but also there's spatial differentiation so when I think about the model with bank entry and exit the number of banks is going to determine essentially the number of different varieties of bank deposits right so one bank's current account isn't going to be a perfect substitute for another and so you know there are some implications for that when when you have banks choosing to exit the deposit market there's also going to be liquidity shocks to deposits which is going to be linked to use of the interbank market and the central bank standing facilities so there's deposits are going to be a relatively attractive source of liquidity for banks because it's cheaper than say kind of the bond market in terms of financing their operations but it comes with this liquidity risk and that liquidity risk is going to be increasing in the market share of CBDC which is going to generate a lot of the action in the model so the key results are that the introduction of CBDC increases competition of banks in the deposit market banks are less profitable because they face this additional competition they seek alternative source of funds so they substitute away from bank deposits also when I allow for entry and exit because banks are less profitable you see banks exit the deposit market and the the deposit market becomes more concentrated at least in the banking side I show that the CBDC remuneration rate is an inefficient monetary policy tool because there's this imperfect pass-through of the CBDC remuneration rate to a deposit rate and increasing CBDC remuneration leads to can lead to decreased bank deposit rates so it's not always raising the CBDC remuneration rate is going to lead to higher deposit rates and this acts through this increased market concentration mechanism right if you raise the CBDC remuneration rate too much banks substitute away from deposits the the remaining banks have more market power and they in some situations they can actually lower the deposit rate. Finally there's also this channel through which CBDC can affect the transmission of monetary policy in the model so this is essentially how the policy rate passes through to the deposit rate and this is if you like I make some assumptions later in the model where I kind of isolate the the two effects right so I fix the spread between the policy rate and the CBDC rate so they move together and I show that you know there's the CBDC market share affects this pass-through of the policy rate to the deposit rate and there are difference when I allow for entry and exit in the banking sector so they're what I call long-run and short-run differences. So there's a lot of related literature now we'll get to see a lot of the papers today and tomorrow. I won't in the interest of time spend too much on the literature I'm going to move to the model so the model is going to be a two-period model there are going to be three agents, depositors, they have heterogeneous preferences which are going to be modeled in this salib circle setting and they choose to deposit either at a bank specific bank or the central bank through CBDC. Banks are going to compete for deposits they do this through price competition so through the interest rate and the central bank operates standing facilities and can decide whether or not to issue a CBDC and if it issues a CBDC it can set the remuneration rate. In terms of the timing so in the first period banks raise liquidity it's going to be an exogenous amount of liquidity and they can choose either to raise it from the central bank or through some external debt market or they raise it they raise this liquidity through deposits and then once they've kind of set if you like the medium to long-run funding decisions these deposits are hit by a liquidity shock so banks have to return essentially to this liquidity neutral position and they do this either through the interbank market or through the central bank standing facilities okay so depositors there's going to be a mass distributed around this salib circle I'll kind of explain a little bit more what's going on there but essentially you you can think of this circle as representing the product space banks are going to locate equally based around this circle which is just if you like the the optimal amount of product differentiation you don't want to offer exactly the same product as your competitors and you depositors choose where to deposit based on a deposit rate and a non-pecuniary non-pecuniary cost which depends so the idea of this cost which is you know literally in these spatial competition models the distance you are from the bank you can think of this as capturing heterogeneous preferences and product differentiation okay and the idea is the banks are going to be very standard spatial competition in the sense that there's going to be linear transport costs which are increasing in the distance from the bank so depositors are going to choose between the two closest banks to their preferences right and then they're going to they're going to weight the interest rate versus how much they like this product and CBDC is going to be if you like a random transport cost that's independent of location and you can think of this as capturing how people maybe value privacy benefits that Fabio was talking about in the keynote right and um and this is um yeah and this is essentially the the depositors decision right they choose between do they choose which bank it's going to be if they choose a bank it's going to be one of the two closest ones or they could choose CBDC and it's if you like um independent of their location um banks um so I've covered most of this already banks have to raise some exogenous liquidity amount so I'm not thinking explicitly about modeling the the loan market um deposits are going to be subject to liquidity shocks um and these expected liquidity shocks are just going to be this uh expected uh cost c uh term in the profit function and the the decisions bank have uh banks make in um the first period is they choose their uh if you like long term funding bi and they choose the interest rate ri that they set on deposits um and I I think of uh two different cases so in the short run the number of banks is fixed at some finite number and in the long run uh I allow n to adjust according to some free entry condition where you have um you know the profits have to meet the the kind of fixed cost f uh of entry so the central bank uh is very simple they set the policy rate which is a subscript f they also set the uh standing facilities the standing facilities are going to operate a you know penalty rate you can think of this as as the corridor system where uh banks borrow liquidity through a lending facility which is a high rate than the policy rate um and banks can also deposit liquidity through the deposit uh facility which has a lower um lower interest rate than the policy rate and they also set the remuneration rate of cbdc which is this subscript cb in my model and they abstain some market share so qi is going to be the market share of deposits of uh of bank i and qcb is just going to be what's left over for the central bank and that's going to be an important variable for uh for the model later on so um in terms of this liquidity shock so once these long-term funding decisions have been made this liquidity shock hits uh so with some probability lambda a fraction uh psi of bank deposits real uh deposit is relocate around the circle so what this means essentially is there's this uh aggregate shift from bank deposits to cbdc um i'm going to assume uh for this presentation that lambda is not too large in the paper i also discussed the case where lambda uh is large and you get um uh kind of a different decision uh by the banks but when the probability of this shock hitting is not too large banks are ex ante liquidity neutral in the sense that um you know they don't want to hold excess liquidity in the case where uh they're not hit by this outflow to cbdc okay so essentially this epsilon is going to be uh with the superscript zero is the excess liquidity uh sorry the liquidity deficit uh when this outflow doesn't hit and it's going to be equal to zero and then with probability lambda uh each bank has a net liquidity outflow because there's this flow from uh the banking sector essentially to cbdc okay and all banks are going to have a liquidity deficit and this is going to be increasing in the market share of cbdc right so this qcb is the market share of cbdc and um yeah essentially the idea is that you know everyone on the circle has some kind of probability of moving to a random location and that's uniform so everyone gets um uh so the inflow so the outflows are spread over the entire uh market but because no no one um flows out of cbdc in this in this case um you get the banking sector having liquidity outflows that are increasing in the market share of cbdc okay um in terms of the interbank market so it's relatively straight uh relatively simple uh the central bank sets the ceiling and the floor through these standing facility rates um in the case where there's no liquidity shock uh the interbank market is going to lie uh within the corridor because the aggregate liquidity of the banking sector is going to be zero right from the previous slide um when this liquidity shock hits because there's this outflow of liquidity um the ceiling is going to buy yep so all bank i'm sorry sorry i need to intervene if you can have the question at the end because otherwise the people in the audience they cannot hear you from from online um sure so the idea is every bank is so the law of large numbers essentially holds so uh every bank is hit by the same uh we'll have the same fraction of their deposits flowing outwards right um the only so essentially you can think of the first case as this shock hits but it also hits the central bank right so then you have this everyone essentially ends up with the same liquidity position in the second case this kind of if you like musical chairs uh shock hits everyone except the cpc depositors who stay still and then you end up with uh all banks uh receiving fewer inflows than outflows right but that the size is going to be the same for all banks yeah which is why in the second case um the ceiling binds because essentially there's going to be an aggregate uh liquidity deficit in the banking sector okay so the expected liquidity cost of deposits um is going to depend on the size of the shock the probability of the shock the market share of cbdc and also uh in this case the um uh the price of liquidity when the shock hits which is going to be uh the ceiling uh interest rate right so this is going to essentially be one of the the channels through which um cbdc affects uh the cost of um deposits for the banking sector um so yeah so if the market share of cbdc increases the liquidity cost of deposits is also going to increase so this is uh the deposit market without cbdc this is you know a a fraction of the circle if you like um where uh banks are going to compete in terms of the deposit rate ri obviously in equilibrium all banks are going to charge a symmetric interest rate but the marginal there's going to be a marginal depositor which is located in equilibrium between two banks in this case um and there they're essentially going to be indifferent between depositing at bank i or i plus one this is kind of very standard uh in the literature this is what happens when I add uh cbdc so essentially on the now we still have on the x-axis if you like competition between two banks so the distance between the two banks is going to matter for uh which bank you prefer but now we have this other dimension which is the cbdc cost which is independent of location so essentially now you can think of it as less of a circle and more of a ring and you have if you like the uh the people who prefer cbdc and end up depositing in cbdc rather than a bank are going to be relatively far away from a bank so they don't like bank deposits uh there's no kind of current account that meets their needs if you like and they prefer cbdc right so these if you like uh the privacy uh concerned individuals uh in Fabio's keynote right so these are the people who um who shift from banks to bank deposits and obviously this is going to depend on the equilibrium deposit rate and the equilibrium uh renumeration rate of cbdc okay um not going to go through uh the first order conditions and all the maths but what I will say is there are kind of three important uh points for the cbdc rate which is if the cbdc rate is sufficiently low uh cbdc has no market share because people prefer banks right um you know this doesn't necessarily mean uh unremunerated cbdc right if the preferences if the demand in terms of preferences is very high for cbdc this could be essentially a negative interest rate right uh so it all depends if you like a little bit on the preferences um if um then there are essentially two different uh cutoffs which is um if uh the cbdc limit uh if cbdc is sufficiently um high no bank center in the long run because this profit condition uh kind of binds right so this is if you like the so the second cutoff is below the last cutoff which is then if the cbdc remuneration rate is really high you get the point where uh there's no entry of banks even in the short run and that's due to um these liquidity costs uh all the way back here right so essentially um if the remuneration rate is sufficiently high you get these liquidity costs getting really high and um all banks essentially prefer outside um non-deposit financing um okay so I have kind of simple graphs to kind of illustrate everything um and these kind of show show the effects right so this is when I get rid of the liquidity shock part and I just look at um if you like the market structure part of the model and I show that you know in the short run which is where I fix the number of banks um I don't care if they're making the same amount of profit anymore then when you increase the cbdc remuneration rate which is the x-axis then you get uh an increase in the deposit rate right which which makes sense this is kind of the standard uh effect you would think you would think banks face more competition they have to raise uh raise deposit rates right but then even in the case without liquidity shocks um because you know in the long run banks have to make the same amount of profits as they did before the number of banks or you know deposit taking institutions in the model will fall as the cbdc remuneration rate uh falls right so uh in the long run you get this um yeah and I should say that this is kind of you can prove this analytically I show in the paper that in the short run uh the deposit rate is always going to be increasing in the cbdc rate right but when you have the long run uh that's not the case and you know uh luckily for me this uh numerical uh calibration um kind of shows that in the long run you get that the uh market concentration effect dominates so you have banks leaving the deposit market and each remaining bank has more market power uh which allows them to set higher deposit rates even when you increase uh the cbdc remuneration rate okay so then what happens when you when I add back in the liquidity shocks then lambda is positive and essentially you get um an even larger impact and now in the short run it's not always the case that uh the cbdc remuneration rate is monotonically increasing right and that's because as you increase the cbd the market share of cbdc uh this affects the liquidity cost of bank deposits now you get this non-linear uh u effect because uh the cost of um the expected liquidity cost depends not only on the market share of cbdc but the market share of banks right so this is kind of where you get the uptick at the end because qi ends up being really small and uh lowering this expected liquidity cost um and then you know in the long run this effect is even more dramatic um in terms of monetary policy so um I make some assumptions which is essentially uh all exogenous interest rates so that's the standing facility and the cbdc rate are a fixed spread over the policy rate so then I look at how how does the deposit rate change when the policy rate changes if you hold essentially the spread fixed so this isn't um so this is a very um particular if you like neutral policy for the model which is to say cbdc shouldn't be unremunerated it should have a fixed spread to the policy rate okay it can be positive or negative but this essentially um is the neutral rate in the model um and once you have that um you get the the model is very simple when there's no cbdc which is um you get perfect pass through there's there's not a lot of frictions that I add without cbdc but when you add cbdc and you have the liquidity shock uh and you need both then this uh deposit rate pass through uh is no longer equal to one and the reason why is because this expected liquidity shock depends on uh this ceiling rate and the ceiling rate I assume is the policy rate plus the spread right so this is uh this is how it works and then this is what it looks like graphically um and essentially you need a relatively large I would say shock for this the matter quantitatively right so the so the the kind of theory part of the paper says you know there's this uh channel uh liquidity cost channel which uh affects the pass through for the deposits rate but if you look at the y-axis on the left hand side it doesn't really affect it very much right uh you get different rates in the short and the long run but essentially you know once you increase the size of these shocks then uh it starts to matter more so that's um that's kind of it probably for time so um yeah just to kind of summarize the policy implications CBDC is likely to increase the concentration of banks in the deposit market if you allow uh for entry and exit in these models um CBDC remuneration rate is an inefficient monetary policy tool which is you know what I think central banks realize quite early on and see there's also this mechanism through the standing facilities and the extra use of the standing facilities uh which can affect the transmission of monetary policy okay thank you very much Andromine um before opening the floor to questions um we have the discussion by uh Timothy from the University of Liverpool the floor is yours while I'm waiting yeah it's just it's great to be here it's lovely to be uh the CBDC conference in the home of the digital euro it's uh it's a nice thing so yeah thank you for all the organizers right so um yeah so thanks for a nice paper um like I've there we go I've played with salad models before and I think it's a really nice kind of arena to talk about market power and actually I use a lot of clever modeling tricks which are very creative so I learned a lot from that so um I guess I don't need to explain too much the the mechanism because you did it pretty well already but basically there's this point that high CBDC issuance implies a lot of central bank to bank interaction I mean it's kind of obvious but I don't think we necessarily thought about it enough and certainly so Benjamin makes the assumption that there is no extra liquidity provision by by the central bank so they have to borrow to this expensive standing facility and so that makes it um lots of CBDC bank interaction makes it expensive for banks and so we get this kind of uh imperfect policy pass through where the cbc rate goes up the share goes up bank liquidity risk goes up so they can't rate they're they're worried about uh liquidity risk they can't raise uh deposits as much deposit rates as much to get this imperfect pass through so there's this kind of this mechanism by which using CBDC for monetary for monetary policy might not be the easiest thing so yet another thing on our kind of laundry list of things to worry about for CBDC so um yeah the first thing that kind of it really uh brought home for me was just this thinking about what would it actually look like on this microstructure of actually the central banks interacting with banks on a much larger scale and I think the thing that kind of struck me first was there's a lot of worry about that and obviously it's kind of kind of going back to the old days where banks and central banks didn't do much of this but if we're looking at today that's not actually so unusual right this is kind of what we see I mean this is just the overnight repose but these are big numbers and so already the central banks and uh banks are interacting a lot already so we can see here that CBDCs are kind of crystallizing this new normal some borrowing the pandemic phrase of new normal but um so while it is kind of maybe scary it's not necessarily so scary because it's more like continuing what we're doing right now which is to have lots and lots of uh central bank bank interaction and I think you can stop short of making it in the paper but it seems like the clear policy kind of point of this uh this paper is that if you're going to have increasing uh central bank digital currencies you also want to increase your central bank lending facilities make the the whole point of this kind of this mechanism happens because the central bank lending facility is very expensive so just offer more lending facilities if you're going to offer more central bank digital currency that seems to be I mean I don't think you stop short of making that but that seems to me the kind of clear implication right so that's kind of the the paper was going to my uh my criticisms my comments the first is you kind of focused on contractory monetary policy so this kind of this this mechanism as I put it there but I think that expansionary monetary policy is probably the kind of where that's where we worry more about monetary policy pass through can we kind of cut rates and get everyone else to cut rates obviously in the model it's all symmetric it's just a derivative but is the argument really symmetric is it so that banks can't really pass on these lower rates so while you make the argument kind of nicely in the paper going in one direction in the other direction if you're cutting rates I don't see why that doesn't mean the banks can pass that um the central the banks can't pass that on and so um I mean the usual answer is deposit elasticity you can't reduce deposit rates too much because you'll lose all your market share and so you already got a model with market power so if you kind of increase the amount of market power reduce the number of banks you could really um exploit this a bit more and I thought this is particularly interesting because one of the big things about cvdc is this possibility of negative rates kind of really pushing it down into kind of negative territory and that's something that you might be able to explore a bit more if you really kind of increase the uh the market power of banks you kind of allow for these policy rates so the pass through to go um to negative so that's my kind of my first most kind of obvious comment second I mean this is a micro papers there's loads of assumptions that's that's fine some of them I think just need a bit more justification so first obviously remuneration I mean we kind of mentioned at the beginning that the digital euro is probably not going to be remunerated and certainly that's going to kill monetary policy you can't really do much policy if you're not going to remunerate um so at least just justify this or think about kind of which banks are thinking about remunerating cvdc something like that secondly is this so you have the cvdc and deposits are more more substitutable than money but they're still not perfectly substitutable certainly in my mind when I'm thinking about cvdc um if you're going to have remuneration they're probably going to be fairly substitutable what's the really big difference between a central bank digital currency and deposit if it's remunerated obviously and so if they're not if it's not perfect substitutability fine but why what am I thinking about here is it is it the accessibility option already uh is it privacy is it smart contracts what what are we kind of thinking secondly is the short and long one obviously super interesting theoretically um but for monetary policy only the short one's really applicable like we're kind of thinking about just the short one and second I thought of it as you were presenting which is that bank exit is not costless so it's costless in the model but in reality it is far from costless so I think that that's something that we should at least kind of consider that bank exit is not a cost it's not like any other firm in a solid model you really kind of it's hard to it's hot when banks fail they do some noisily um finally you got no asset side which is again fine but it really means you're pushing all of the action onto the deposit rate and so obviously if you had an asset side you have some loan rate movement as well um yeah this one I've fair enough you kind of ceded to it in the end of your paper which was that the the scale is pretty small here so these are pretty kind of fourth digit changes even on the other one it was single basis point changes so as you said it's going to be big shocks that's going to matter I mean how big shocks are we talking about and then the other point I noticed was that this inflection point where things get interesting that's happening at very big shares of central bank digital credits so more than 50 percent of cbdc now do we really think the central banks going to issue 50 percent of the of the base I mean maybe but I'd like to kind of that needs to be justified uh shameless motion of my paper we actually if we do a survey data and we find that only about 10 percent is seems to be the amount the Germans have in mind so certainly if you're going to talk a lot about this inflection at least justify how this is going to happen um and then yeah I mean maybe it's a low hanging fruit but welfare right like kind of is this is this significant like kind of what's what matters I mean in these sell-up circle models you can do loan surplus bank profits these are quite easy things for you to do and you can calculate at least get a sense of kind of what matters and similarly optimal policy I'd like to see some some kind of sense of policy that that seems that is reasonable more difficult to answer I think is just this general micro versus macro so um yeah I am a macro economist so obviously I'm going to be biased here and I said yeah there's a mark twain criticism that to a man with a hammer everything looks like a nail so obviously I'm going to think macro and all of these things but certainly if we think about effectiveness of multi-policy it doesn't seem the most obvious use a micro theory approach I mean you've got price changes dynamics general equilibrium these things matter and we know they matter and so I think that I love micro theory don't get me wrong and I think that there are definitely places for it but I think that in terms of pass-through maybe less so and yeah I kind of point out there's quite a lot of people have already done things on this kind of approach not with the pass-through policy but certainly I mean Woodford 2003 like way before it was cbdc it was remunerated cash in his book but he's already starting to think about this kind of possibility and there were plenty of kind of examples again I shamelessly cite myself but um this conference there's lots of examples of lovely kind of macro paper so they may be more appropriate for this particular topic I think that's uh it can be done and then finally I just want to have a moment on just kind of what is it the what's the externality that we're really talking about here what's the kind of thing that we're worrying about so we have this kind of statement that cash use is falling we know that we know that kind of cash is falling but why is that a bad thing I mean certainly kind of there are people who've talked about these things but in this paper what we're on about is it are we worried about relying on banks of payments this kind of singleness of money the central bank power what is it that you're thinking of that's the thing that we're trying to kind of go against and I guess I mean in my mind whenever I think about this I think that banks have disintermediated the central bank right that's we're very worried about the central bank disintermediating banks nowadays with cbdc but banks have done that to central banks right we've reduced the amount of cash that's effectively banks disintermediating the central bank why do we want to undo this like what's the reason for this does it matter and are banks today so much better off because of this disintermediation because of this declining cash use this reliance on deposits are banks so much better off the day we're worrying about the inverse but I kind of want to know like kind of why are we worrying about this so much what are the kind of what are the things exactly we're talking about what are the externalities we want about and that's the questions I want to see answered and I think that some clarity on that would be useful and then last slide yeah there's just some missing literature I mean you've probably added a whole load more from this from this conference but certainly this is the point of just not in the not in a cbdc context but liquidity in monetary policy old topic so cite the big guns on that there's a whole load of papers that you published in site lots of cbdc literature lots of this conference as well so make sure you cite them and then one that I didn't see was PSAG Snyder which was a bit surprising because that's a cbdc paper with banks as liquidity providers only so I think that's something that needs to compare with um yeah that's what you're done but no thank you very much for very interesting paper thank you for the discussion if there are questions in the audience uh one there in the meantime while the microsoft travels down here let me summarize some of the questions we received from the online audience which were essentially all referring to the issue of the remuneration most cbdc projects now are non-remunerated so how the online attendance were wondering how the model will change without the remuneration for cbdc's kathrin yeah so kathrin asma cb so you are modeling the non-remunerated cbdc as a fixed spread to the policy rate which i think so so if i understood correctly so this is of course right in the context of your model where you have a static model but i think over the business cycle you would think of a time varying spread of the cbdc rate to the policy rate because the policy rate is changed over time so would you be able to look at that or do you have a feeling what your model would say on that are there other questions otherwise we can maybe this time have a second oh please over there hello tony anat ecb so the just two comments the result i liked best from the paper is the difference between the short one and the long one where you could show that in the long one you get this interesting and surprising result that higher cbdc remuneration can actually reduce the policy rate so it might be worth while you know pushing this result more and the other comment is i was closely related to what the discussant said i was a bit uncomfortable with your statement about you know efficiency or inefficiency when there was no welfare or normative analysis so you may want to be a bit careful thanks okay um thanks uh so yeah thanks uh to timothy for the discussion uh i'm definitely gonna uh steal some of his ideas um yeah so um i guess i'll start with the the remuneration part because i got uh a lot of comments so um yeah so on on catrin's point um i i um i didn't mean to say that the fixed policy rate is unremunerated rate but that's the that's the policy neutral rate in the model right is to have a fixed spread from uh the policy rate to the cbdc rate um and a non-unremunerated cbdc rate i would have thought would you know you would just have a zero interest rate on that uh but that would as you say have a time varying uh spread so this kind of links back to um uh some of timothy's points which is um i i can look at you know uh um an unremunerated cbdc rate and the pass through because it would just be some combination of uh you know the cbdc pass through effect in the and the uh policy rate pass through as as i've modeled it right um because essentially you can think of part of it as uh the effect that you get if you hold the spread fixed and then part is changing the spread uh because you you want to hold the cbdc rate is zero so yeah i could do that in the paper because you know i was focusing on the theory rather than the policy uh to me separating the two uh made made kind of the uh the mechanisms of the model a bit clearer but yeah i guess especially when i think about uh the numerical part it's easy to just fix the cbdc remuneration rate to zero and and show that you know then you would get a bit more action because a lot of it would be uh the unremunerate uh the the cbdc remuneration part rather than just uh uh yeah the uh policy rate pass through um yeah on efficiency um yeah i'm not sure i wanted to to say anything about efficiency um so um yeah i don't know why i did i guess um so but in terms of welfare obviously uh i'd refer you to janet's uh discussion about why modeling welfare is is difficult and we don't want to do it um but also in terms of a salep circle model if you go back to your your io textbook like i did right the standard salep circle model has too much entry when you allow for free entry and exit so you know if i look to welfare i would bias the results very heavily in favor of cbdc which maybe my boss would appreciate but um you know basically kicking banks out of the the deposit market is welfare improving in these models right so that's another thing that that makes it bad but also i don't look at the fact that you know especially when you're holding the market structure fixed having people switch from banks to cbdc means they prefer that right so at least from the consumer perspective uh you know it's it's welfare improving in the in the short run at least right when the number of banks is fixed um but yeah i can do uh maybe i can do a bit more uh without talking about welfare but you know hinting at welfare perhaps thanks um if there are no more questions yes oh that's me okay i thought you were looking at someone else oh uh thanks for the paper because i think when we're doing our older paper i think we were thinking about the salep model and then it's good to see how that plays out and one one one comment i guess i was a little bit confused about the result that why cbdc is crowding out uh sort of uh uh deposits and i now i think i i know i and it's related to one comment by but team as well so the model is kind of a kind of partial equilibrium in the sunset the deposit i think probably is fixed so if cbdc comes in and with the salep model right it's going to steal some business from from the from from deposits right for sure right so that's like by almost by by by assumption so i guess what are we having our you know our model or the gp one so that one we got the cbdc can expand the deposit and the reason for that is because we we can have kind of a little you can suck something from the account into deposits i think that's a general equilibrium effect probably so yeah as a macroeconomist i guess for at least in our paper i think that says for many reasons why you could have cbdc can crowd in right because that's sort of shut down in in your model so i just want to sort of clarify that um maybe it's useful yeah uh sure yeah yeah that that's a good point so yeah in the model the the deposit markets are fixed size and i i haven't looked at uh endogenous changes in in uh deposit market thank you there is maybe one last question from the audience um even that we are decently good on time yeah thanks thanks for the presentations i picked up on one of the points of the discussions on um kind of that this this uh cost of central bank lending is a kind of a key assumption that drives i think a lot of euro results and i was thinking about the optimal policy here which is also a point that he made so i wonder more specifically if you maybe even could characterize some kind of equivalence result that then would depend on what rate or what the cost is that the central bank would charge on this lending facility uh and if that's something that in these type of models is possible at all and then i would be interested what you think it would depend on um okay thanks um yeah so it's definitely something i could look at more um because in the in the paper i've just essentially uh thought about a fixed rate i haven't thought about you know altering the the window rates or anything like that uh or the window size um one thing i would say is you know for me this is a little bit maybe uh a reduced form way of of uh modeling other cost of the the banking sector may face right so one is obviously uh you know to the extent that banks need to provide collateral to the central bank in order to access some of these facilities then you know i i haven't modeled that but that would be uh increased use of these uh standing facilities or or other uh central bank borrowing may raise these kind of like collateral premium as well so that's linking back a little bit to what it may depend on