Thomas Garcia
- 15 October 2026
- WORKING PAPER SERIES - No. 3300Details
- Abstract
- Holding limits are a central design feature of proposed retail central bank digital currencies (CBDC). While such limits mechanically prevent individuals from exceeding a maximum balance, they may also generate behavioral responses whose directions are a priori unclear. We conducted an incentivized online experiment with participants from four euro-area countries, exogenously varying the presence and level of a holding limit to causally separate direct mechanical effects from behavioral effects. We find that behavioral responses increase holdings of the means of payment subject to the holding limit, consistent with an attraction effect. This effect is material only when the limit is high enough. Enabling reverse waterfall —automatic conversion into this limited means of payment— increases adoption while reducing holdings. These results suggest that combining holding limits with automatic funding mechanisms can support CBDC use while containing holdings, thereby helping to mitigate potential financial stability risks.
- JEL Code
- E42 : Macroeconomics and Monetary Economics→Money and Interest Rates→Monetary Systems, Standards, Regimes, Government and the Monetary System, Payment Systems
C91 : Mathematical and Quantitative Methods→Design of Experiments→Laboratory, Individual Behavior
D14 : Microeconomics→Household Behavior and Family Economics→Household Saving; Personal Finance
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
- 21 May 2025
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 1, 2025Details
- Abstract
- Digitalisation is transforming the delivery of banking services, leading to the emergence of new digital bank business models. Small retail deposits, many of which are cross-border, are the main source of funding for digital banks in the euro area. They follow one of two main types of business model: that of a lender or that of a similar nature to a money market fund. Their lending franchises tend to be narrowly specialised. Digital banks are less profitable than their traditional peers due to their higher cost of deposits and fixed expenses, but they are highly valued by equity investors. The continued growth of digital banks could bring benefits for customers but may also threaten financial stability by displacing incumbents and increasing cross-border spillovers.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
L20 : Industrial Organization→Firm Objectives, Organization, and Behavior→General
O33 : Economic Development, Technological Change, and Growth→Technological Change, Research and Development, Intellectual Property Rights→Technological Change: Choices and Consequences, Diffusion Processes