This historical study shows that the bank run risk associated with central bank digital currency (CBDC) is quite real, but it can be mitigated with holding limits. The study looked back to the Great Depression of 1930-1931, when French savers had a safe alternative to banks in the form of government-backed savings institutions (caisses d’épargne ordinaires, or CEOs). CEOs were not allowed to lend nor to provide payment services – they were effectively a source of funds for the government. Interest rates paid on CEO deposits were regularly higher than those paid by commercial banks to their depositors, and perversely, in March 1931, the limits on CEO deposits was increased from 12,000 to 20,000 francs for individuals and 50,000 to 100,000 for firms. Not surprisingly there were bank runs that the study suggests explained one-third of the drop in real GDP in 1930-31.
In March, French startup Lugh launched a new Euro stablecoin (EUR-L) backed by deposits held in a Societe Generale bank account and currently available on the French crypto exchange Coinhouse. EUR-L is issued on the Tezos blockchain, and Lugh reports that users will be able to access monthly reports regarding their reserves, validated by a global accounting firm.
EMTECH-spearheaded Project New Dawn (PND) is a technical implementation of a retail central bank digital currency (CBDC) that runs on an Ethereum-based platform. PND is also working with the Hedera Hashgraph Network, to develop further understanding how to use interoperability to provide trust in the private sector part of the two-tiered CBDC network.
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