Central bank digital currencies: Serious problems if they are retail currencies

Central banks are considering putting into circulation their own digital currencies (currencies managed via blockchain and recorded on the central bank’s balance sheet). We look at the situation where the currency is not just a “wholesale” currency (used for settlements between banks), but a “retail” currency (able to be held by non-bank economic agents). A central bank digital currency would give rise to a serious problem: Economic agents would convert some of their bank deposits into holdings of central bank digital currency: this would reduce banks’ funding (due to the fall in deposits) and their reserves at the central bank; There would then be two options: Either the central bank refinances banks (by increasing repos) to the amount of the loss of deposits, and banks are able to keep the same level of outstanding credit; Or the central bank does not refinance banks and banks have to reduce their outstanding credit, imposing a disintermediation of the financing of the economy.