Colombia central bank recommends limiting CBDC holdings and spending

cointelegraph.com:

The central bank of Colombia has not yet decided whether or not to issue a central bank digital currency (CBDC), but believes that setting limits on CBDC transactions could bring about a number of benefits.

In its latest CBDC study, titled “Expected Macroeconomic Effects of Issuing a Retail CBDC,” Colombia’s Banco de la República concluded the potential introduction of a retail CBDC doesn’t pose any significant macroeconomic risks.

In order to mitigate any potential threats associated with CBDC, Colombia’s central bank recommended setting holding and spending limits for the digital currency. According to the regulator, such a CBDC design would increase the security of funds as CBDC holdings limits could safeguard users from cyberattacks targeting their balances or transactions.

Setting limits on retail CBDC holdings could also allow regulators to deal with the tradeoff between privacy and transparency by offering diverse tiers of limits.

For example, the Colombian central bank could offer digital wallets with small holding limits and a high level of privacy for people that place a high valuation to their transaction data. On the other hand, those who are comfortable with disclosing more data could prefer high holding limits and lower levels of privacy.

Additionally, CBDC limits could be beneficial for commercial banks as they would reduce the demand for a retail CBDC as a store of value in competition with bank accounts, the central bank noted.

“The introduction of the CBDC could be an attractive alternative for some risk-averse holders of other cash-like instruments,” the study reads, adding that this could impact the demand for government bonds, commercial papers and term deposit certificates. The study authors stated:

While