Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/297457 
Year of Publication: 
2024
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2024-9
Publisher: 
Bank of Canada, Ottawa
Abstract: 
We examine the optimal amount of user anonymity in a central bank digital currency (CBDC) in the context of bank lending. Anonymity, defined as the lender's inability to discern an entrepreneur's actions that enable fund diversion, influences the choice of payment instrument due to its impact on a bank's lending decisions. We show that moderate anonymity in CBDC leads to an inefficient pooling equilibrium. To avoid this, CBDC anonymity should be either low, reducing attractiveness, or high, discouraging bank lending. Specifically, the anonymity should be high when CBDC significantly benefits sales, and low otherwise. However, competition between deposits and CBDC may hinder the implementation of low anonymity.
Subjects: 
Digital currencies and fintech
JEL: 
E42
E58
G28
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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