Don’t Break the Bank: - Economic Considerations and Design Implications for a

Commercial bank money provides us, the consumer or business, with a claim on central bank money up to the value of the money that is in our accounts in addition to the amount of the overdraft that is permitted. [...] The same ECB study found that, in the case of the euro area, for every €1,000 increase in the holding limit of CBDC, the substitution away from households’ euro-denominated overnight deposits would be €340 billion, or 7% of the total stock of households’ euro-denominated overnight deposits.11 Equally, a holding limit that is too low would disincentivise the adoption and use of CBDC, and could conf. [...] Article 16 of the European Commission’s proposal for Regulation on the establishment of a digital euro enshrines a role for the ECB in setting the appropriate holding limit of a digital euro, and other safeguards to limit the digital euro’s use as a store of value.12 Fabio Panetta, Executive Board Member of the ECB, who currently leads the ECB’s work on a digital euro at Board level, suggested in. [...] By designing a CBDC that facilitates offline payments and does not require the ownership of a commercial bank account, citizens in such countries would have the potential to access a digital form of money with all its associated uses, without the requirement to have access to the internet and without the onerous requirements that often come with setting up a bank account. [...] Failure to answer this essential question creates a risk that central banks in the developed world fail to design a CBDC that meets the challenges posed by the decline in the use of cash, the potential weakening of the monetary policy transmission mechanism, and financial stability risks posed by the widespread adoption of volatile cryptocurrencies.