CBDC Neutrality, Bank Liquidity, and the Hybrid Nature of Bank Deposits

Why It Matters

The analysis shows that CBDC design directly affects banks' liquidity buffers and profitability, shaping how central banks must calibrate refinancing to avoid destabilising the two‑tier monetary system.

Key Takeaways

• CBDC neutral if central bank matches deposit funding cost
• Deposits act as hybrid money, providing low‑cost funding
• CBDC adds reserve‑intensive conversion channel for deposits
• Banks need larger liquidity buffers under CBDC coexistence
• Neutrality may require central‑bank subsidies, reducing bank seigniorage

Pulse Analysis

The neutrality proposition rests on a simple accounting insight: when households shift funds from deposits to CBDC, banks lose deposit funding but can be compensated if the central bank supplies reserves at an equivalent cost. Niepelt (2026) formalises this by showing that, under such refinancing, banks’ lending margins remain unchanged and credit creation proceeds as before. This view treats CBDC as a passive replacement for deposits, assuming that liquidity needs are automatically met through central‑bank operations.

In practice, deposits are not ordinary debt; they are hybrid monetary instruments that combine claim‑like features with money‑like liquidity services. This hybrid nature allows banks to fund assets cheaply while offering low‑interest accounts, generating a quasi‑seigniorage rent. CBDC disrupts this balance by introducing a direct conversion pathway that requires a one‑for‑one reserve transfer to the central bank. As a result, the reserves intensity of deposit intermediation rises, forcing banks to hold larger liquidity buffers to settle payments and conversions, which erodes the implicit subsidy embedded in deposit funding.

Policymakers therefore face a choice: maintain neutrality by providing central‑bank refinancing at rates below banks’ effective deposit costs, effectively subsidising the additional reserve outflows, or accept a shift in the distribution of seigniorage toward the public sector. The latter would diminish banks’ profitability and could reshape the political economy of money creation. Designing a CBDC regime that transparently offsets these liquidity costs can preserve the two‑tier system’s stability while making the underlying public support for private credit creation more explicit.