Private households are a discriminated majority in all societies. Only a privileged minority, consisting mainly of commercial banks, has access to the full range of money options found in modern monetary systems. The most attractive type of money—central bank reserve money—is out of reach for private households, leaving them with two suboptimal choices. They can rely on cash and accept the inherent exposure to the risk of loss, or trust a commercial bank with their savings. Central Bank Digital Currency (CBDC) would end this discrimination. Private households would, for the first time in the history of money, gain access to an intangible version of central bank money.

Although this sounds like a great innovation from which all parts of society could profit, it might come at a price. The banking industry, which is used to getting retail customers’ money for (almost) free, would have to compete with CBDC and pay risk premia for their store of value facilities. This could result in less (cheap) liquidity in the banking system, which could translate into less lending to all sectors of the economy. From this results-focused perspective, societies should bury their visions of intangible central bank money for everyone. However, central banks seem determined to introduce CBDC. To overcome potential side-effects that may ensue, such as funding gaps for commercial banks and liquidity shortages in lending markets, central banks suggest diluting their risk-free store-of-value option to a point that would mitigate all undesirable side-effects.