CBDC: functional scope, pricing and controls
Ulrich Bindseil, Fabio Panetta, Ignacio Terol · Edward Elgar Publishing eBooks · 2022
Even before their deployment in major economies, one of the concerns that have been voiced regarding central bank digital currencies (CBDC) is that they might be "too successful" and lead to bank disintermediation, which could intensify further in the case of a banking crisis. Moreover, some argue that CBDCs might unduly crowd out private sector payment solutions, i.e. beyond what would be desirable from the perspective of the respective comparative advantages of private and public sector money. This paper discusses success factors for CBDC, and how to avoid at the same time the risk that CBDC could crowd out banks and private sector payment solutions. For this, beyond recalling mitigants to an excessive take up of CBDC as store of value, the paper emphasizes the importance of the functional scope of CBDC for the payments' functions of money. The paper also recalls the risks that the usage of CBDC could be too low, if its functional scope, convenience, and store of value properties are unattractive for users. Finding an adequate functional scope of CBDC - neither too broad to crowd out private sector solutions, nor too narrow to be of too limited use - is challenging in an area with network effects like payments. In this context, the role of the incentives applied to private sector service providers involved in the distribution, usage and processing of CBDC (such as banks, wallet providers, merchants, payment processors, acquirers, etc.) is discussed, including both fees and compensations.