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When less is more: behavioral effects of CBDC holding limits

Author

Listed:
  • Garcia, Thomas
  • Lambert, Claudia
  • Pancaro, Cosimo
  • Rimbaud, Claire
  • Soldà, Alice

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 Classification: E42, C91, D14, E58

Suggested Citation

  • Garcia, Thomas & Lambert, Claudia & Pancaro, Cosimo & Rimbaud, Claire & Soldà, Alice, 2026. "When less is more: behavioral effects of CBDC holding limits," Working Paper Series 3300, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20263300
    Note: 1559770
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    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Systems; Standards; Regimes; Government and the Monetary System
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D14 - Microeconomics - - Household Behavior - - - 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

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