The Impact of e-CNY on Commercial Bank Deposits (Zenodo)

Summary

• The paper studies the impact of e-CNY on commercial bank deposits through customer asset allocation and bank asset-liability management.p.1
• The effects on deposits are primarily structural: transactional, highly liquid deposits are more likely to migrate, while deposit categories do not necessarily decline in the same proportion.p.5
• Large banks can cover deposit losses through interbank borrowing or bond issuance, while small and medium-sized banks depend more on local retail deposits.p.4
• Banks are advised to run stress tests of daily payment, continuous deposit migration and centralized transfer scenarios to estimate a possible funding gap.p.5

Key insights

1. Effects are explained in two stages: asset-side substitution by households and firms, and liability-side transmission inside banks.p.3
2. Asset substitution does not necessarily reduce bank deposits or loans, since banks may raise deposit rates and other funding sources.p.2
3. The impact on banks' deposit creation capacity is relatively weak in the short run but may increase as adoption spreads.p.3
4. Whether lower deposits create liquidity risk depends on the bank's liquidity buffer and the central bank's operating framework.p.4
5. In stress, quick-conversion e-CNY products could rapidly pull out funds and increase liquidity demand.p.4
6. Banks should track demand and time deposits, and household and corporate deposits, separately.p.5
7. Banks that rely more on retail deposits should assess customers' ability to cope with fund flows to other institutions.p.5