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Cash or Cache? Distributional and business cycle implications of CBDC holding limits

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  • Magin, Jana Anjali
  • Neyer, Ulrike
  • Stempel, Daniel

Abstract

Many central banks are discussing the introduction of a Central Bank Digital Currency (CBDC). Empirical evidence suggests that households differ in their demand for a CBDC. This paper investigates the macroeconomic and distributional effects of different CBDC regimes within a New Keynesian model with a heterogeneous household sector. Households prefer to hold part of their income in CBDC as a means of payment as it facilitates transactions. If they cannot hold their preferred share of CBDC, they will face transaction costs. We find that the introduction of a binding limit on CBDC holdings can increase the shock absorption capabilities of an economy. If the limit is used as a monetary policy instrument, prices will be stabilized more effectively after shocks. However, a CBDC implies distributional effects across households.

Suggested Citation

  • Magin, Jana Anjali & Neyer, Ulrike & Stempel, Daniel, 2025. "Cash or Cache? Distributional and business cycle implications of CBDC holding limits," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 101(C).
    • Handle: RePEc:eee:intfin:v:101:y:2025:i:c:s1042443125000514
    DOI: 10.1016/j.intfin.2025.102161
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    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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