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The Central Bank of Colombia has not yet decided whether to issue a central bank digital currency (CBDC), but believes that placing limits on CBDC transactions can offer a range of benefits. In its recent study titled “Expected Macroeconomic Effects of Retail CBDC Issuance,” the Banco de la República of Colombia concluded that the potential introduction of retail CBDC does not pose a significant macroeconomic risk.
Different Regulation is Necessary for CBDC
To mitigate potential threats related to CBDC, the Central Bank of Colombia recommended the establishment of holding and spending limits for the digital currency. According to regulators, such a CBDC design could enhance the security of funds by protecting users’ balances or transactions from cyberattacks. Setting limits for retail CBDC assets could also allow regulators to address the trade-off between privacy and transparency by offering various limit levels.
For instance, the Central Bank of Colombia could provide small holding limits and highly private digital wallets for individuals who highly value transaction data. On the other hand, those comfortable with disclosing more data may prefer higher holding limits and lower levels of privacy. Additionally, the central bank noted that CBDC limits could be beneficial for commercial banks, as it would reduce demand for retail CBDC as a competing store of value with bank accounts.
The study states that “the implementation of CBDC could be an attractive alternative for risk-averse holders of other cash-like instruments,” potentially affecting demand for government bonds, finance bills, and time deposit certificates.
Imposing Restrictions on Assets
The Central Bank of Colombia, closely monitoring and examining the global development of CBDC, remains undecided on whether the country needs such a digital currency.
“A decision to issue a retail CBDC should also take into account the fact that it must have enough desired features to create the necessary network externalities for it to be feasible.”
Several other jurisdictions and organizations are also considering setting limits on CBDC holding and spending.
In July, major financial trade bodies like UK Finance advocated for the UK government to impose limits on users’ digital pound assets, ranging from £3,000 ($3,800) to £5,000 ($6,400). According to UK Finance, a higher limit of £20,000 ($25,600) per individual in crypto assets could destabilize the traditional banking system by facilitating bank transactions or competition with banks.
In 2020, Ulrich Bindseil, the Director General of Market Infrastructure and Payments at the European Central Bank, recommended adopting a €3,000 ($3,271) limit per person for holding digital euros.
