Central Banking, March 25, 2026. HTML. Interview text:
1. A number of central banks are currently working on introducing retail CBDC. In your view, what are the risks they most frequently overlook?
One risk is losing sight of the bigger picture. Retail CBDC is not merely a technological innovation that may or may not help respond efficiently to structural change in the payment system. It can also serve as a tool for broader reform of the monetary architecture. The overarching objective should be to provide liquidity to Main Street at minimum social cost, and the debate about retail CBDC should focus on whether it can help achieve that goal. Instead, the discussion often centers on secondary objectives and insufficiently questions the status quo.
2. The ECB, for example, argues that holding limits will ensure that commercial banks do not feel too much pain from the digital euro as deposit flight will be small. What is your view?
Why would commercial banks’ “pain” be a primary concern for policymakers? Even if it were, the fears around deposit flight are often overstated. Retail CBDC does not remove funds from financial markets—it reallocates them from banks to the central bank, which reinvests the funds. Depending on policy design, retail CBDC may have little or no effect on banks’ funding conditions, and even when it does, this is not necessarily harmful. If policymakers are genuinely concerned about deposit flight, the appropriate tool is remuneration, which directly influences demand. In contrast, holding limits are a blunt instrument: they fragment markets, create incentives to circumvent the restrictions, and can encourage runs into other assets.
3. How should commercial banks prepare for CBDC issuance?
Commercial banks should first consider what societal benefits their money creation provides. If these societal benefits exist and are significant, there is little reason for concern. If, however, bank money creation primarily serves banks or their clients without generating substantial social value, banks should prepare for reduced deposit funding. Even in that case, losing access to deposits or inexpensive substitutes would not spell the end of banking—banks generate value in many other ways.
4. Most central banks are pursuing non-remunerated CBDCs. Is this the right course of action?
No. A retail CBDC that does not pay interest is less attractive as a store of value, making bank deposits relatively more appealing and increasing the payment system’s dependence on fragile, too-big-to-fail banks. It is difficult to justify introducing retail CBDC without allowing it to compete with bank deposits—unless the goal is simply to preserve banks’ money-creation business model, which is not obviously a societal objective. Non-remuneration also reduces retail CBDC’s usefulness as payment instrument, potentially undermining any other objectives that the CBDC is intended to achieve.
5. What is the interplay between the policy choices of holding limits and remuneration?
Remuneration and holding limits influence retail CBDC in fundamentally different ways. Remuneration is a price instrument: by adjusting the interest rate on CBDC, the central bank can influence how much households and firms choose to hold. Holding limits, by contrast, are quantity restrictions applied to individual users. When demand varies across households and firms, these limits create distortions and incentives for circumvention.
6. The post-GFC environment saw plenty of public anger directed at the banking sector, which was seen to have managed to get away “scot-free” thanks to generous QE policies from central banks, with plenty of arguments connecting banking sector bailouts and the “populism”, for lack of a better term, of the 2010s. How would issuing digital public money play into this?
Indeed, there is a view that banks, their staff, or their customers privatize gains while socializing losses. If true, this would amount to large implicit subsidies and distortions. Banks have also been seen to preserve this asymmetry, lobbying policymakers and playing a game of whack-a-mole with regulators. Retail CBDC could offer a new avenue to address this situation. On one hand, it increases transparency in the monetary architecture, fostering accountability and raising public awareness. On the other hand, it acts as a “carrot”—an attractive alternative payment instrument that can draw users away from deposit holdings at fragile banks—replacing the “stick” of regulation, which often lags and carries collateral costs. The success of this strategy depends on making retail CBDC a genuinely appealing substitute for deposits, unlike policies that rely on stringent holding limits and non-remuneration.
7. If central banks found themselves more “politicised” by issuing a CBDC, what policy choices could they make to avoid this perception?
The main risks associated with retail CBDC may indeed lie in the realm of political economy. Its successful introduction would expand the central bank’s balance sheet, likely triggering demands and proposals from policymakers outside the central bank as well as from interest groups. This makes institutional design crucial. The decision to introduce retail CBDC should not rest with the central bank, since the implications extend well beyond monetary and financial stability. At the same time, central banks must retain full operational control over the instruments necessary to fulfill their mandate, particularly price stability. Clear governance arrangements and a well-defined mandate are essential to ensure that retail CBDC does not blur the boundary between monetary policy and fiscal or industrial policy objectives.
8. What are the main academic debates surrounding CBDC? How should central banks think about them?
The literature has addressed “micro” and “macro” dimensions of retail CBDC. The former concern, for example, privacy and its implications for CBDC demand. Macro issues typically relate to banks, financial intermediation, credit, and investment. I find it useful to organize the findings in this macro literature around the core features that make CBDC relevant in the first place. Yet these features have not been emphasized strongly. Rather than focusing on the fundamental sources of CBDC’s macroeconomic relevance, the literature often shows how accompanying policy choices shape its economy-wide implications. These accompanying choices—for example, regarding CBDC remuneration, the regulatory treatment of bank deposits relative to central bank credit facilities, or the design of central bank operating frameworks—are frequently treated as secondary when they are, in fact, decisive. Even slight changes in model assumptions can make results that suggest CBDC is transformative collapse toward neutrality. A key lesson of the literature, therefore, is that accompanying policy choices are of first-order importance for retail CBDC. This underscores that political economy considerations are equally central.