COMPETITION BETWEEN CENTRAL BANK DIGITAL CURRENCIES (CBDC) AND COMMERCIAL BANK DEPOSITS: IMPACTS ON THE FINANCIAL SYSTEM

Abstract

One key issue now facing policymakers stems from how central bank digital currencies could reshape existing financial structures. Not just a technological shift, this change may alter where people choose to keep their money. Because some nations already experimenting with these systems offer clues about future trends. Early evidence suggests most users still rely heavily on private banks for everyday transactions. Yet even small shifts toward state-backed digital cash might affect lending patterns over time. Depending on whether such currency earns interest, individuals may find it more attractive than standard accounts. Limits on how much one can hold often aim to reduce risk but complicate efforts to reach underserved groups. Another factor involves how easily digital currency moves across platforms. If transfers prove too seamless, large outflows during economic stress become possible. Some models predict modest adoption rates through 2025 unless user incentives improve significantly. Design decisions made today could influence how smoothly central banks manage inflation tomorrow. Access policies promoting wider participation sometimes conflict with measures meant to protect banking resilience. Though overall deposits remain largely unchanged so far, underlying pressures are beginning to show. What appears minor now may gain importance if public trust evolves quickly. From China to Nigeria, then the Bahamas, followed by the Eurozone and India - each example shows distinct results based on structural choices. Not replacement but shared presence emerges as the probable path ahead when oversight bodies act early on shifting dynamics.