I've read about CBDC, how it could be a cryptocurrency like digital payment system, that could replace fiat currencies. But what I don't get is what value would it give to the economy?

Someone who works at a Central Bank explained to me, that by holding the a currency in your own crypto wallet, and not not as a deposit in a commercial bank, the commercial bank's balance sheet would shrink significantly. By shrinking, it could lend out less money with higher interest rates, and could disrupt the complex commercial banking system in a bad way.

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    $\begingroup$ It would be to know what you mean by CBDC, since the term is very broad. Would it be available to the public (i.e. retail CBDC)? If so, would the people be able to have an account with the central bank? Would that account pay interest? $\endgroup$ – Art Sep 4 at 6:05
  • $\begingroup$ Makes sense to me: it would be like holding cash. Nobody holds \$50000 cash, they put it in a bank so nobody can steal it. But you could easily have \$50000 of CBDC, without putting it in a bank. This would give a lot less power to banks because less people would give banks money. Right now, you give the bank money because it's the default option. $\endgroup$ – user253751 Sep 4 at 15:48

The function of a bank is to take in assets and create loans.

If a bank doesn't have as many assets, especially money, it can't create as many loans.

One major way that banks get assets is when people give them their money for safe-keeping.

If people didn't need to give their money to banks for safe-keeping, banks would have a lot less money. Therefore, they couldn't create as many loans. Therefore, it would be harder to get a loan.

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