When less is more: behavioral effects of CBDC holding limits

Thomas Garcia, Claudia Lambert, Cosimo Pancaro, Claire Rimbaud and Alice Soldà

No 3300, Working Paper Series from European Central Bank

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

Keywords: behavioral economics; CBDC; digital currency; experimental economics; holding limits (search for similar items in EconPapers)
Date: 2026-10
New Economics Papers: this item is included in nep-cba, nep-exp and nep-mon
Note: 1559770
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20263300

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