Experts from the Bank of Canada have conducted detailed research on the impact of introducing a central bank digital currency (CBDC) on bank deposits. Many economists believe that the introduction of CBDC will lead to a transfer of deposits from banks to the new digital currency. However, experts from the Bank of Canada note that most previous assessments do not take into account the significant factor of other offered financial products by banks, such as mortgages or credit cards. According to the available models, assuming consumers don’t consider other products, 39% of deposits could be replaced by CBDC.
However, it is important to note that CBDC is not a perfect substitute for traditional bank deposits. When consumer preferences for other banking services are taken into account, the Bank of Canada’s model shows that only 12% of deposits will be transferred to CBDC. Data for the analysis was obtained from a household survey conducted from 2010 to 2017. It was found that 56% of deposit holders had a mortgage with the same bank, and 45% used a credit card from the same financial institution. The analysis assumed that CBDC would not offer interest rates.
The study also took into account consumer preferences regarding the need to visit bank branches for customer service, support, and filing complaints. Therefore, these factors were included in the model. Experts estimate that if CBDC does not have service points, only 1% of deposits will be transferred to the new digital currency. However, this situation is not an ideal solution. Therefore, it is predicted that the actual number of transferred deposits will be 12%, assuming consumers can receive support for CBDC at all banks and post offices.
Another aspect that was analyzed is the limit on the amount of CBDC that consumers can hold. With an assumed limit of 25,000 CAD (18,500 USD), the Bank of Canada experts predict that deposit migration to CBDC would be reduced by half. This restriction would only affect 10% of households, but it turns out that this group has many other financial assets, which may influence the decision to transfer deposits.
Different countries have different approaches to CBDC quantity limits. For example, China and Russia have decided to introduce their offerings gradually without set limitations. On the other hand, the European Union proposes a quantity limit of 3,000 EUR (3,234 USD), but EU banks oppose this and demand a reduction of the limit to 500 EUR. They argue that a higher limit could negatively impact GDP. In the UK, limits ranging from 10,000 to 20,000 GBP (25,260 USD) have been proposed, although in consultations, banks have requested a reduction of limits to 3,000 – 5,000 GBP.
The introduction of a retail central bank digital currency (CBDC) poses a significant challenge for the banking sector. Despite expectations of partial deposit migration to CBDC, experts from the Bank of Canada demonstrate that a truly small number of bank deposits will be replaced by the new digital currency. An essential factor is consumer preference for other services offered by banks, such as mortgages or credit cards. Additionally, preferences for customer service and branch visits also influence deposit transfer decisions. The CBDC quantity limit and the approach of different countries to this issue also affect consumer decisions. Nevertheless, the potential changes that the introduction of a retail central bank digital currency can bring should not be underestimated. The final effects of CBDC introduction will depend on various factors and may differ depending on each country. One thing is certain – CBDC regulations will require careful consideration and take into account all relevant market aspects and consumer preferences.