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Central Bank Digital Currency and Financial Stability in a Dual Banking System

Central Bank Digital Currency and Financial Stability in a Dual Banking System

Hichem Hamza, Khoutem Ben Jedidia
Copyright: © 2020 |Pages: 20
ISBN13: 9781799800392|ISBN10: 1799800393|EISBN13: 9781799800415
DOI: 10.4018/978-1-7998-0039-2.ch012
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MLA

Hamza, Hichem, and Khoutem Ben Jedidia. "Central Bank Digital Currency and Financial Stability in a Dual Banking System." Impact of Financial Technology (FinTech) on Islamic Finance and Financial Stability, edited by Nader Naifar, IGI Global, 2020, pp. 233-252. https://doi.org/10.4018/978-1-7998-0039-2.ch012

APA

Hamza, H. & Ben Jedidia, K. (2020). Central Bank Digital Currency and Financial Stability in a Dual Banking System. In N. Naifar (Ed.), Impact of Financial Technology (FinTech) on Islamic Finance and Financial Stability (pp. 233-252). IGI Global. https://doi.org/10.4018/978-1-7998-0039-2.ch012

Chicago

Hamza, Hichem, and Khoutem Ben Jedidia. "Central Bank Digital Currency and Financial Stability in a Dual Banking System." In Impact of Financial Technology (FinTech) on Islamic Finance and Financial Stability, edited by Nader Naifar, 233-252. Hershey, PA: IGI Global, 2020. https://doi.org/10.4018/978-1-7998-0039-2.ch012

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Abstract

The digitization of payment and the development of private digital currencies have constrained central banks to examine the issuance of their own central bank digital currency (CBDC) in order to face the competition of the new peer-to-peer payment system and the decline of cash use. This chapter addresses the topic of CBDC and places the discussion within the context of dual banking intermediation and financial stability. The design of CBDC in term of accessibility, anonymity, interest rate, and payment mechanism depends on the cryptocurrency use and money characteristics regarding the use of cash and deposit. The CBDC Sharia compliant, free of interest or PLS-based, fulfilling money value stability might be a solution. The effects of CBDC on banking intermediation and financial stability depend importantly on the CBDC design and switch significance of banks deposit to CBDC but remain an open question given the pros and cons arguments. In a dual banking system, Islamic banks could limit the disintermediation effect and maintain financial stability under Sharia compliance.

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