CBDC and Bank Deposits: What Happens to Savings and Liquidity?

CBDC and bank deposits compete for the same pool of household and corporate money, but the outcome is not fixed. A retail central bank digital currency can pull some balances out of commercial banks, raise competition for deposit funding, and move part of liquidity risk onto the central bank balance sheet. How big that shift gets depends on three design choices: whether CBDC pays interest, whether users face holding caps, and who can access it.

That is the practical issue for banks, fintech teams, policy professionals, and digital asset builders. CBDC is not just a new payment rail. It can change how savings are priced and how liquidity moves during calm periods and during crises.

What a Retail CBDC Changes on a Bank Balance Sheet

A retail CBDC is a digital liability of the central bank that households and firms can hold directly. It has cash-like safety, but it works in digital form. When you move money from a bank deposit into CBDC, your bank loses a deposit liability. On the asset side, it may also lose reserves or central bank money used to settle that transfer.

Simple version: your balance moves from a commercial bank claim to a central bank claim.

This matters because banks use deposits as a relatively stable funding source for lending. If deposits leave, banks need replacement funding. They can raise deposit rates, borrow in wholesale markets, use central bank facilities, cut lending, or do all four at once.

The Three Main Channels: Deposits, Funding Costs, and Liquidity

1. Substitution from deposits to CBDC

CBDC can substitute for cash, but research from the Bank for International Settlements and the IMF suggests it may substitute more strongly for bank deposits, especially sight deposits and transaction balances. A BIS model found that if CBDC adoption reached 14 percent of GDP, retail deposits could fall by about 11 percent of GDP while cash holdings fell by roughly 3 percent of GDP. That split tells you where the pressure lands.

An empirical study using United States data estimated that each 1 dollar of CBDC adoption could reduce bank deposits by roughly 0.80 to 0.81 dollars at the margin. These are not forecasts for every country. They show what can happen when CBDC is widely accessible and attractive as a store of value.

2. Higher competition for deposit funding

If CBDC gives savers a risk-free alternative, banks may need to pay more to keep deposits. The European Central Bank has warned that CBDC can increase the cost of deposit funding and lead banks to lean more on central bank standing facilities. The IMF has made a similar point: even if total deposits fall, banks may raise deposit rates to hold onto customers.

For savers, that can be good. Higher deposit rates are not a bad thing if banks previously paid too little because customers had few safe alternatives. But there is a trade-off. If banks lose cheap, stable funding, they may protect margins through higher loan rates, tighter credit standards, or fees.

3. Faster liquidity movement in stress

The run-risk question is blunt: if a bank looks weak, will depositors move money into CBDC faster than they would withdraw cash or transfer to another bank?

Probably, unless safeguards exist. A CBDC wallet could make flight to central bank money a few taps away. BIS research on German households found that respondents were more likely to withdraw funds from banks during financial distress when CBDC was available. That is the difference between slow disintermediation in normal times and fast disintermediation during panic.

Will CBDC Replace Savings Accounts?

No, not under the designs most central banks are discussing. But CBDC can take a slice of savings if it pays interest or carries high holding limits.

The Reserve Bank of India has said its retail CBDC pilot will not pay interest and is meant mainly for transactions. That design makes CBDC less attractive than interest-bearing deposits for savings. You might hold enough CBDC for payments, but you would not park your long-term emergency fund there if a bank account or money market product pays more.

An interest-bearing CBDC that pays close to bank savings products becomes a direct competitor. The Federal Reserve has noted that a remunerated CBDC could raise bank funding costs. Some Fed research finds a more nuanced effect: if banks have market power and underpay depositors, CBDC competition can push up deposit rates and, in some cases, support more lending. So the answer is not always deposit destruction. Market structure matters.

What the Numbers Say About Deposit Outflows

The estimated decline in deposits varies widely by design and country. IMF survey work reports country-level estimates ranging from around a 10 percent decline in total deposits in the United Kingdom to about 0.1 percent in Portugal. A Federal Reserve scenario considered an extreme case where all transaction and savings deposits could move into CBDC, producing a deposit decline of about 33 percent, equal to roughly 10 percent of total bank assets.

That extreme case is useful as a stress test, not as a policy target. Most central banks are not trying to build a public savings product that drains bank balance sheets. They are trying to improve payments, resilience, inclusion, and monetary sovereignty while keeping credit intermediation intact.

Design Choices That Decide the Outcome

Non-interest-bearing CBDC

A zero-interest CBDC mainly competes with cash and low-yield transaction deposits. It is the least disruptive model for bank savings balances. Banks may still lose payment balances, especially corporate operating cash that sits in current accounts, but long-term savings should mostly stay in interest-bearing products.

Interest-bearing CBDC

This is the design banks worry about. If CBDC pays a competitive return and has no strict cap, it can become a safe savings instrument. Depositors may ask a rational question: why take commercial bank credit risk if central bank money pays nearly the same?

Deposit insurance softens that question, but it does not remove it. Trust changes fast during stress.

Caps and tiered remuneration

Holding caps limit how much CBDC each user can hold. Tiered remuneration pays a normal or zero rate up to a threshold, then a lower or negative rate above it. The aim is clear: make CBDC useful for payments, not for parking large savings balances.

This is where implementation gets messy. In real wallet testing, cap logic is not just a number in a database. You need identity resolution across wallets, offline payment rules, recovery flows, and exceptions for merchants. If cap checks happen after settlement messaging, you can create failed top-ups that are painful to unwind. Developers who have built regulated payment systems know this detail matters more than the policy slide suggests.

Liquidity Risk Moves Toward the Central Bank

When deposits move into CBDC, the banking system may lose reserves and deposit funding. Banks then rely more on central bank liquidity operations or other funding markets. ECB and BIS studies both point to greater use of standing facilities under CBDC adoption.

This changes the operating model of monetary policy. The IMF notes that CBDC substitution can affect reserve balances, short-term money market rates, and how liquidity is distributed across institutions. Interbank market activity may also change if customer flows into CBDC reduce the need for banks to borrow from each other.

In plain English: CBDC can make the central bank a more active liquidity provider, even if commercial banks keep originating most credit.

What Policy Tools Can Protect Savings and Liquidity?

Most serious CBDC proposals use safeguards. The common toolkit includes:

• Individual holding limits: Keep CBDC balances small enough for everyday use and limit large savings migration.
• Zero or low remuneration: Make CBDC less attractive than bank deposits for long-term savings.
• Tiered rates: Penalize large balances above a threshold while preserving basic payment utility.
• Targeted refinancing lines: Provide collateralized central bank liquidity to solvent banks facing CBDC-related outflows.
• Phased rollout: Start with limited access or low caps, then adjust based on deposit data and bank funding conditions.
• Institutional access controls: Prevent large corporates or financial firms from shifting wholesale liquidity too quickly.

The Banco de España has argued that funding shocks from CBDC can be contained with the right design and central bank refinancing tools. That position is sensible. CBDC risk is not binary. Bad design can amplify outflows. Good design can keep the payment benefit while limiting damage to bank funding.

Three Scenarios for Banks and Savers

Scenario 1: Capped, non-interest-bearing CBDC

This is the most likely path in many jurisdictions. You use CBDC for small payments, peer-to-peer transfers, or offline resilience. Savings stay mainly in bank deposits, money market funds, or other yield-bearing instruments. Banks lose some transaction balances, but the system adapts.

Scenario 2: Moderately remunerated CBDC with safeguards

CBDC competes with sight deposits and some savings accounts. Banks raise deposit rates. Savers gain more bargaining power. Central banks may need larger liquidity facilities. This is manageable, but only if caps and backstops are credible.

Scenario 3: Interest-bearing CBDC with no strict caps

This is the high-risk model. CBDC becomes a major savings alternative. Bank deposit funding shrinks materially. Lending could get more expensive. During stress, money can move into central bank wallets fast. To be blunt, this design is unlikely in bank-based economies unless policymakers are willing to redesign financial intermediation itself.

What Professionals Should Learn Next

If you work in banking, fintech, digital assets, or policy, treat CBDC as both a payment architecture issue and a balance-sheet issue. Do not model it as just another wallet product. And do not confuse CBDC with tokenized deposits. A tokenized deposit may look like a balance on a ledger, but it is still a commercial bank liability. CBDC is central bank money. That distinction is the question that trips up many certification candidates.

For structured learning, Blockchain Council readers can explore resources such as Certified CBDC Expert™, Certified Blockchain Expert™, and Certified Cryptocurrency Expert™. If you are a developer, pair the policy study with hands-on work in token standards, identity, wallet custody, and settlement design through Certified Blockchain Developer™.

The best next step is practical: map a CBDC flow from a bank deposit account into a retail wallet, then mark what happens to the bank liability, reserves, customer interest income, and liquidity coverage. If you can explain that flow clearly, you understand the real impact of CBDC and bank deposits better than most slide decks do.