Luohan Academy

Event Recap

What about CBDCs? A Policy Critique



Darrell Duffie (Stanford University)

Darrell Duffie is the Adams Distinguished Professor of Management and Professor of Finance at Stanford Graduate School of Business. He is a fellow and member of the Council of the Econometric Society, a research fellow of the National Bureau of Economic Research, a fellow of the American Academy of Arts and Sciences, and a distinguished fellow of Luohan Academy. Duffie was the 2009 president of the American Finance Association. In 2014, he chaired the Market Participants Group, charged by the Financial Stability Board with recommending reforms to Libor, Euribor, and other interest rate benchmarks. Duffie’s recent books include How Big Banks Fail (Princeton University Press, 2010), Measuring Corporate Default Risk (Oxford University Press, 2011), and Dark Markets (Princeton University Press, 2012).


On November 9, 2021, Professor Darrell Duffie from Stanford University joined us in a Luohan Webinar to discuss the economic implications and policy issues of CBDC. 

Whether to introduce a central bank digital currency is now a major policy issue in most countries. By touching down to the essence of payment service, Prof. Duffie provides a framework for evaluating policies with the angle from the efficiency of payment and competition in the banking sector. 

Private-sector digital money and payment services would likely be at least as effective as a CBDC. To improve the efficiency of payment systems, the main policy options are (1) heighten competition in the private sector, for example, with instant-payment systems, open-banking rules like PSD2, and encouraging entry by fintech firms; and (2) introduce a CBDC. Development of CBDC technology should begin immediately in case Option 1 is not effective and because a successful CBDC design will take a number of years. 

On the other hand, effective competition induced by CBDCs or the entry of fintech firms would increase the cost to banks of funding. In particular, the bank will face higher deposit interest rates or the need to obtain additional wholesale-market funding. It has been suggested by the Bank Policy Institute and some central bank officials that this would, in turn, reduce credit provision by banks and thus represents a reason to avoid the introduction of CBDCs or access by fintech firms to central bank accounts. Prof. Duffie explains why such a suggestion is not well-founded.

In the end, Prof. Duffie proposes some main policy options from his analysis:

1)  Use regulations and fast-payment infrastructure to promote a more open, efficient, and competitive bank-railed payment system.

2)  Allow or encourage compliant private stablecoins, subject to compliance and interoperability standards.

3)  Allow or encourage fintech neo-banks to enter the bank-railed payment system, subject to strong compliance and interoperability standards.

4)  Introduce a general-purpose central bank digital currency.

The talk attracts more than 150 scholars and students in Luohan's research community. Prof. Luigi Zingales (University of Chicago), Prof. Rod Garrett (UCSB), Prof. Boris Vallée (Harvard), Prof. Yao Zeng (Wharton) and researchers from Luohan Academy engage in active and constructive discussions with Prof. Duffie during the event.

If you would like to give a presentation in a future webinar, please contact our Economist Dr. Xijie Gao ( ​

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