CBDCs have the potential to disintermediate deposits from the banking system and move them into CBDC accounts held at the central bank. Such disintermediation could lead to a less productive financial system because previously stable bank credit is undermined by CBDC issue. The banking system would also be more prone to crisis, which could erupt suddenly too.

In the event of a major market shock, there may be no interest rate sufficient to prevent fund holders moving large amounts into CBDCs, and this problem could be aggravated further by administrative ‘fixity’ in CBDC rates of return. We would then get a situation similar to what happened with the US Postal Service system in the 1930s when administrative fixity in Post Office interest rates sucked deposits out of the banking system.

CBDC policymakers would also have to grapple with a clear contradiction between a central bank’s commitment to maintaining a fixed rate of exchange between commercial and central bank money, and a central bank considering the use of quantitative restrictions on the issue of CBDCs. Should the demand for CBDCs surge, then it may become impossible to maintain parity between CBDCs and conventional central bank money.