Central bank digital currency and bank lending returns

This paper investigates the relationship between the utilization ratio of central bank digital currency (CBDC) and bank lending returns. We extend the traditional credit rationing framework by including CBDC utilization and show that the relationship between the CBDC utilization ratio and bank lending returns can be negative, U-shaped, or positive, depending on the relative magnitude of the income, risk, and cost-saving effects associated with CBDC. Numerical simulations reveal varied trends in lending returns under different market conditions, with a U-shaped relationship observed in a neutral market. Sensitivity analysis further indicates a non-linear impact of key parameters on returns. These findings highlight the complex dynamics between CBDC utilization and bank lending returns, underscoring the need for further empirical research as more data becomes available.