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Central Bank Digital Currencies (CBDC) and Citizens’ Security

A Central Bank Digital Currency (CBDC) is a type of digital currency issued and guaranteed by the central bank of a country. A key feature of CBDC is security, often likened to the security of cash. Central banks argue that the introduction of CBDCs can contribute to enhancing citizens’ financial security.

The Impact of CBDC on the Banking System

However, implementing CBDC models brings certain challenges, especially in terms of their interaction with the commercial banking system. A key issue is the impact CBDC can have on the banking system and whether it will increase the risk of “flight” from commercial banks. Designing CBDCs requires finding a delicate balance between central and commercial banks.

The Limit of CBDC Holdings

One way to control the issuance of central bank digital currencies is to set limits on their holdings by citizens. Research has indicated that an optimal CBDC holding limit for digital euros could be around 3000 euros. It is worth noting, however, that there is a difference in limits between digital euros and digital pounds, suggesting that some are more prone to panic than others.

Deposit Insurance and CBDC

It is also important to consider deposit insurance in European banks when discussing CBDC holding limits. Currently, deposit insurance amounts to 100,000 euros per bank account, which is 33 times larger than the suggested cyber euro holding limit. There is a concern that banks may seek to reduce deposit insurance, potentially increasing risks for citizens’ deposits.

Patrick McConnell – Financial Markets Expert

Patrick McConnell, the author addressing these issues, is an academic and esteemed consultant specializing in the application of technology in financial markets. His analyses and perspectives on CBDC have been further developed in the publication “Unlocking the Potential of the CBDC Ecosystem,” released by OMFIF and Giesecke+Devrient.