Key Details
The ECB working paper When Less Is More: Behavioral Effects of CBDC Holding Limits tests a design question for retail central bank digital currency (CBDC): can a wallet cap protect bank deposits without making the new payment method less useful?
Experiment | Result |
|---|---|
Participants | 761 people recruited online in France, Germany, Italy and Spain |
Wallet limits | Participants allocated 10 tokens between two payment options, first without a cap and then with a cap of either 3 or 8 tokens on the CBDC-like option |
Behaviour below the cap | Participants whose initial holdings were below the cap increased them on average after a cap was introduced; the increase was driven by the higher-cap group |
Automatic funding | When payments could draw funds automatically from the other option, CBDC-like adoption rose from 85.2% to 92.1%, while average holdings fell from 2.35 to 2.05 tokens |
These are results from an incentivised experiment, not observed holdings in a live CBDC system.
A Cap Can Change Choices Without Constraining Them
A CBDC wallet limit mechanically prevents a user from holding more than the ceiling. The researchers ask a less obvious question: does knowing the ceiling also change how much people want to hold?
It did for some participants already below the cap, whose choices did not have to change. On average, their holdings rose from 2.04 to 2.23 tokens after a limit appeared. The paper interprets this as an attraction effect: the ceiling can become a reference point. Other participants reduced their holdings, consistent with finding the restriction off-putting.
The balance between those responses depended on the cap’s level. With the lower cap, attraction and aversion broadly cancelled out among comparable participants below it. With the higher cap, the net behavioural increase was clearer. This is why the effect of a wallet limit cannot be inferred from the ceiling alone.
Automatic Funding Supported Payments Without Large Wallet Balances
The experiment then added a feature called reverse waterfall. If a user had too little digital currency for a payment, funds moved automatically from the linked bank-account-like option to complete it. Users could therefore benefit from the CBDC-like option’s payment reach without keeping as much money in its wallet.
With that feature, more participants chose to use the CBDC-like option, but average wallet holdings fell. Among users who adopted it, average holdings declined from 2.76 to 2.24 tokens. The result suggests that a holding limit and automatic funding can do different jobs: one caps balances; the other preserves ease of payment.
The Experiment Tests Behaviour, Not a Real-World Deposit Shift
Participants made paid choices between simplified payment options: one earned interest but was not accepted by every simulated seller; the CBDC-like option paid no interest but was always accepted. Those incentives help isolate behaviour, but actual payment habits, bank products and wallet features are more complex. The participants were recruited online in four euro-area countries, and the study does not measure deposit outflows from banks after a CBDC launch.
The stronger evidence is that a higher cap increased holdings among participants who were already below it. In the full higher-cap group, average holdings also rose, but that broader result was statistically less conclusive.
What Is a Retail CBDC?
A retail central bank digital currency (CBDC) is digital money issued by a central bank for use by the public. India’s digital rupee (e₹) is being tested through retail wallets. It is distinct from a balance in a commercial bank account, which is why moving substantial sums from deposits into CBDC wallets can matter for bank funding.
Policy Relevance
India’s retail e₹ pilot gives the RBI a setting in which to study wallet use alongside balances held. The ECB experiment does not establish what Indian users would do, or imply that India should adopt its experimental caps. It does show why assessing only whether a ceiling is technically enforceable would miss part of the design question.
Two measures would be especially informative in any Indian evaluation:
Balances below a limit: Does introducing or changing a ceiling alter holdings among users whom it does not directly constrain?
Use with automatic funding: Can a linked-account feature make payments convenient while keeping wallet balances—and potential deposit shifts—contained?
Follow the Full Working Paper Here: When Less Is More: Behavioral Effects of CBDC Holding Limits.
India Context: RBI Digital Rupee FAQs