The upcoming era of central bank digital currency: research, insights, and forecasts

The De Nederlandsche Bank study explores the implications of Central Bank Digital Currency (CBDC) on the financial system. It highlights risks of high demand causing disruptions and proposes ownership limits as a safeguard. The European Central Bank allows banks more discretion in setting CBDC limits. Research indicates CBDC won't eclipse bank involvement, with potential benefits after the transition. Regulatory tools can help central banks ensure stability, and forecasts suggest post-adoption improvements in interest rates and deposits.

CBDC and the Study by De Nederlandsche Bank
De Nederlandsche Bank (DNB) recently published a study on the impact of Central Bank Digital Currency (CBDC) on the financial system during a transitional period. The study’s findings bring significant insights into potential disruptions arising from high demand for CBDC.

High demand for CBDC and Disruptions in the Banking System

According to DNB’s analysis, significant demand for Central Bank Digital Currency may lead to outflows from the banking system, which in turn could generate potential disruptions in the stability of the banking sector.

Optimal Solution for the Transitional Period

To minimize negative effects, the study suggests introducing specific ownership limits, such as a set limit of 3000 euros. This solution aims to manage the transitional situation without causing excessive turbulence in the financial system.

Benefits of CBDC post-transitional period

After the transitional period, the study assumes that Central Bank Digital Currency will bring net benefits to prosperity and will not exclude banks from the process, providing a significant alternative to traditional financial systems.

Considerations of the European Central Bank (ECB)

The European Central Bank (ECB) previously considered introducing CBDC ownership limits of 3000 euros. However, a new regulation project regarding the digital euro transfers the decision on limits from the ECB to banks and other payment providers, giving them greater freedom in this regard.

The Role of Banks in the Context of CBDC

According to research from the Bank of Canada, the impact of Central Bank Digital Currency on bank deposits will be around 12%, meaning that banks will not be marginalized in the financial process. The Dutch study suggests that before the introduction of CBDC, banks had a monopoly on deposits, which led to the need for banks to raise interest rates in response to competition.

Regulatory Instruments for Central Banks

To mitigate potential disruptions in the financial system during the transitional period, central banks have tools such as ownership limits and the ability to impose negative interest rates above a specified ownership level, aiming to maintain the stability of the banking sector.

Forecasts after CBDC Adoption Stability

Modeling conducted by DNB suggests that after the stabilization of Central Bank Digital Currency adoption, interest rates and overall bank deposits will be higher than before the introduction of CBDC, which could positively impact the country’s financial situation.