Our analysis holds important lessons for the introduction of central bank digital currencies (CBDCs). With a CBDC as the main means of payment, people can convert their bank deposits into CBDC quickly. There is no longer a need to stand in line at an ATM as currently in Russia. With CBDC, ordering goods and dumping this electronic cash is easier, too: a simple on-line transaction suffices. While the Russian central bank may suspend electronic means of payments, this is a bad option in a CBDC system, as such transactions lie at its heart. Suspending CBDC payment possibilities risks breaking trust in the currency altogether. With a CBDC, a central bank run may no longer proceed in slow motion, as currently in Russia; it can be fast and dramatic.
The situation in Russia is unusual. The central bank run as described may not come to pass, and lines at ATMs may recede. But trust in government money should not be taken for granted. We have seen plenty of panic in the U.S. in the last two years already. Options on how to deal with the evaporation of trust need thinking through ahead of time, particularly once a CBDC is introduced.
That is part of a short piece by Linda Schilling, Jesús Fernández-Villaverde, and Harald Uhlig.