A recent paper by De Nederlandsche Bank (DNB) explored the transition period after the launch of a central bank digital currency (CBDC). If demand for the CBDC is quite high, then the transition could be disruptive because deposits flow out of the banking system.
The economists explored various options to smooth the transition and found specific holding limits are the best interim solution. A figure of €3,000 works. After the transition period, they find that a CBDC is a net positive for welfare in a steady state and doesn’t disintermediate banks.
Previously the European Central Bank (ECB) floated the idea of a €3,000 limit. However, an updated draft of the digital euro legislation published in early February transfers the decision on limits from the ECB to banks and other payment providers. Hence, the limit will differ between banks, with non-banks likely offering far higher limits.
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