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6. Practical Implications for Banks 6.1. Flight to Safety/Bank Runs The main concern for commercial banks when it comes to the implementation of retail CBDCs and especially direct CBDCs is the resulting risk of a consumer flight to safety and the consequent risk of bank runs that this creates. At present, bank runs are theo-retically possible but are harder to execute due to physical limitations. During contem-porary bank runs, consumers have to physically go to a local bank branch and line up to get their money. However, the execution of these withdrawals when using retail CBDCs is far easier, where a bank run would then be possible simply with frictionless digital transactions on a computer or smartphone. From this, there is clearly the possibility that retail CBDCs may make bank runs very easy and thus, more probable. This risk may henceforth pose a great risk to financial stability during times of heightened demand for bank deposit withdrawals. In support of this sentiment, Williamson (2021) finds that CBDCs tend to encourage banking panics. These banking panics are still considered less disruptive than the alter-native, and as such the author is of the opinion that it is better to learn to live with them than to eliminate them as he considers this to be too costly. Furthermore, Williamson (2021, p. 25) finds that his model shows how deposit insurance can mitigate, but not necessarily eliminate bank runs and further shows that emergency open market inter-ventions tend to encourage bank runs by increasing the net payoff to the runs. Whereas at present, attempting to take part in a bank run one may incur costs of actual-ly having to physically go to a bank branch and line up for hours until making a with-drawal is possible, a retail CBDC would definitely encourage bank runs by making them far easier and less costly. From the game theoretical logic, the knowledge of this possi-bility would be enough to imply a first mover advantage, and as such due to the CBDC withdrawal’s ease of access everyone would run in case of a financial distress situation. The only possibility that would exist in this case to mitigate those runs would be to make the CBDC programmable or set a quantity limit and make it costly to withdraw CBDCs from a certain limit on to discourage runs (Anonymous, personal communica-tion, 11 March, 2022). However, on the other hand, it is debatable how politically palat-able the general public would find programmable money or a withdrawal quantity limit, this is a far broader topic of discussion and well outside of scope. The flight to safety aspect is not only limited to within the country but also from outside the country with retail CBDC; it would make it especially for safe haven currencies such as the CHF difficult to stop upward pressure from coming in from outside of the country in times of distress if foreign holders were to be allowed (D. Prader, personal communi-cation, 21 February, 2022). This upward pressure that will be set on the central banks of such safe haven currencies will definitely have to be dealt with if such currencies were to offer retail CBDCs and were they to allow foreign holder because the flight risk would definitely be made much higher than it is now, making the job for the respective central banks a lot more complex. Furthermore, the trust in commercial banks will never be as great as in a central bank, thus participating in a run would always be the best choice, which in turn would mean that the implementation of a retail CBDC, especially a direct CBDC, directly takes away business of commercial banks and makes commercial banks for the end consumer basi-cally useless (D. Prader, personal communication, 21 February, 2022). It is definitely true that a direct CBDC signifies the central bank encroaching on the market of commer-cial banks directly and that the end consumer may not want to choose a commercial bank over the central bank as the trust and risk level of the latter is unmatched by any commercial bank (D. Prader, personal communication, 21 February, 2022). So, the ques-tion arises, if central banks introduce direct CBDCs what the whole point is of the com-mercial banking system, because at that point the central bank would have to take over the whole business model of commercial banks as basically no one would choose a commercial bank over the central bank as the latter is after all riskless and cannot go bankrupt and would always be the best choice. The ease of convertibility of commercial bank deposits into CBDCs is dangerous as it facilitates bank runs as previously mentioned; it would make runs near instantaneous and of an unprecedented scale (Kumhof & Noone, 2021, p. 559). Thus, Kumhof & Noone (2021, p. 559) propose that mandatory convertibility of deposits into CBDCs is “unprec-edented, dangerous and unnecessary”. Furthermore, Kumhof & Noone (2021, p. 559) argue that there is no legal requirement for commercial banks to pay out retail central bank money on demand against bank deposits, thus, there should also not be a manda-tory requirement of convertibility of deposits into CBDC in order to mitigate the possi-bility of runs of never seen before speed and scale. The real risk to financial stability and biggest impact on commercial banks according to Kumhof & Noone (2021, p. 560) comes from the presence of a retail CBDC and the guarantee of unlimited convertibility between deposits and CBDC. Kumhof & Noone (2021, p. 560) argue that convertibility is unnecessary because parity of deposits and CBDC can be maintained as long as the interest rate or quantity on CBDC is adjustable, there exists a functioning and liquid market for CBDC eligible securities and lastly there is at least one private sector agent that is active on both CBDC and CBDC eligible securities market and is able to accept and issue payment from bank deposits. Mitigating factors against bank runs may be quantity-based or price-based (Kumhof & Noone, 2021, p. 561) such as setting specific caps on how much of the deposits are able to be converted into CBDC over a certain amount of time, however if the cap is too high there still remains the chance of bank runs. A price-based mechanism would be the two-tiered interest system as proposed by Bindseil (2020) whereby there is a high interest tier 1 CBDC and a low interest tier 2 beyond tier 1 in order to discourage people from running from banks and holding too much CBDCs. 6.2. Decrease of Bank Deposits Whether it be with direct or indirect CBDCs, there is a chance that bank deposits would decrease from their current level and would therefore have to offer a higher interest rate in order to be able to maintain any appeal. No matter how attractive a commercial bank may be, the central bank will always be more attractive as it is absolutely riskless and is far less likely to face bankruptcy (D. Prader, personal communication, 21.2.2022). The main risk of CBDCs is the substitution away from privately issued money into CBDC, while substitution from cash into CBDC is considered harmless (BIS, 2021, p. 6; Anonymous, personal communication, 11 March 2022). The money creation process is heavily intertwined with the bank credit provision (BIS, 2021, p. 6) and should this pro-cess be disturbed, bank credit would also suffer as a result, this could cause the whole financial system to become systemically imbalanced (D. Prader, personal communica-tion, 21 February, 2022). To minimise the substitution of deposits by CBDC, a limit to the amount of CBDC citizens are allowed to hold, may be proposed; however, then the question arises who would even demand that CBDC (Anonymous, personal communica-tion, 11 March, 2022). It would be quite challenging for banks to maintain their profitability levels in this envi-ronment as they depend heavily on overnight deposits (BIS, 2021, p. 6). The magnitude of the challenge depends on the exact design of the CBDC, as a direct retail CBDC would have a much bigger impact on banks than a hybrid or intermediated CBDC, as well as on whether such CBDCs would be interest bearing or not. In the ideal case, CBDCs should not be a substitute for deposits and should instead attempt to be a substitute for cash only, as commercial bank deposits can offer competitive interest rates while CBDCs that mimic cash would not (M. Takemiya, personal communication, 24 February, 2022). From this, one can infer that the crux of a CBDCs ability to substitute away commercial bank deposits lies in its interest design. If commercial bank deposits are able to offer high interest rates on deposits while CBDCs do not bear any interest rates, this type of CBDC will just be able to substitute cash instead of substituting private money, making it a substantially lesser threat to financial stability (Anonymous, personal communication, 11 March, 2022). In situations where individuals are either extremely risk averse or in situations of ex-treme financial distress, they might still prefer to hold the riskless but interest free CBDC over commercial bank deposits (Anonymous, personal communication, 11 March, 2022). Then commercial banks would have to turn to costlier wholesale funding regard-less of interest rate yield profile (BIS, 2021, p. 6). Banks would need to issue long-term wholesale debt to buy high-quality liquid assets in order to be able to maintain their lending volumes as well as their required liquidity ratios (BIS, 2021, pp. 6-7). However, this type of funding is a lot costlier than overnight retail deposits and the banks’ weighted average funding costs would increase due to such a substitution of funding (BIS, 2021, p. 7). In order to be able to offset the increase in cost, banks would then have to increase lending rates, which would in turn decrease lending volumes (BIS, 2021, p. 7). A serious issue arises if banks then do not have any more liquidity with which to give out loans. As a result, the whole financial system’s money creation process is disturbed and lending volumes subsequently crash, which greatly harms financial stability (D. Prader, personal communication, 21 February, 2022). However, it is of note that researchers are not yet unanimous on the impact of CBDCs on deposit funding. While there is still some dispute, there seems to be general agreement that there will be a negative impact on competition (BIS, 2021, p. 8). On one hand, we have research claiming that CBDCs would be a safe haven asset and so would crowd out commercial bank deposits (BIS, 2021, p. 8). On the other hand, there is also some empir-ical research claiming that there would be a crowding in effect that would encourage saving, rather than consumers switching to CBDCs if commercial banks were forced to match the CBDC rate (in the case of an interest-bearing CBDC) (Kumhof & Noone, 2018). However, a substantial proportion of the research argues that CBDCs will most likely have an effect on bank profitability and lending if banks respond to the introduction of CBDCs by relying more on market funding. Prognostications are ambiguous here; banks’ maturity transformation and liquidity risk may either face upward pressure due to the reliance on more volatile funding or downward pressure due to more market discipline (BIS, 2021, p. 8). Other studies find that interest bearing CBDCs may prompt banks to increase their deposit rates (BIS, 2021, p. 8). Such studies also imply that this may have detrimental effects on bank lending. Banks would basically make up for the higher deposit rates by increasing lending rates, and thus lowering demand for loans by creating more expensive credit lines (BIS, 2021, p. 8). Overall, this will lead to a net welfare loss within the banking system and for the economy as a whole, since the benefits of CBDCs would be at least somewhat outweighed by the disadvantages brought about by more expensive lines of credit (BIS, 2021, p. 8). However, other studies find that the introduction of CBDCs may actually increase lending as they increase the overall depositor base, which would in turn expand lending and/or reduce borrowing costs (BIS, 2021, p. 8). This argument may be especially true in emerging market countries where most of the population is usually still unbanked. In such cases, there is still great potential to increase the depositor base by giving the domestic unbanked population access to a CBDC account and hereby including them in the financial system. In developed economies such as in Switzerland, the introduction of a retail CBDC is unlikely to have the same inclusion effect due to the well established private payment system, as well as the high banking rate of the population and so would not necessarily increase lending as might be the case for lesser developed countries (Anonymous, personal communication, 11 March, 2022). In mature financial systems, most of the population already has access to commercial banking with nearly comprehensive market penetration, and thus the depositor base could not be significantly increased by the same mechanism. To summarise, the overall effect on bank deposits of CBDC will be heavily dependent on its exact mechanism design; in particular whether the CBDC is: 1. Direct or indirect 2. Interest bearing or noninterest bearing 3. Legally (fully or partially) convertible to and from commercial deposits. 6.3. Money Creation & Cash Handling Today most of the money creation process is done by commercial banks and less by the central bank in a country like Switzerland (D. Prader, personal communication, 21 Feb-ruary, 2022), thus the implementation of a retail CBDC would disturb the overall money creation process in a developed country with declining cash usage. However, there are arguments that claim that the reduction of cash usage due to the introduction of CBDCs may actually lead to reduction of costs associated with cash han-dling for commercial banks. This may especially be true for harder to reach locations, such as on small islands and in other more dispersed and rural areas. The Bahamas are a good example of a country that is able to profit from the introduction of CBDCs, and where commercial banks are able to save costs. It can be posited that CBDCs are a public good and a sensible way for a small country like the Bahamas to modernise its financial system (Areddy, 2021, p. 1). After a Hurricane in 2019, it took commercial banks more than a year to rebuild their physical branches, and since some areas of the Bahamas are harder to access it makes perfect sense for these regions that the country opted to in-troduce its own CBDC “The Sand Dollar” in order to modernise and relieve its commer-cial banking sector after Hurricane Dorian (Areddy, 2021, p. 2). Especially smaller countries with dispersed and harder to access populations can profit from the introduction of a CBDC, as such populations may still be unbanked because these areas may have been costly to access for commercial banks but may now be easy to access via CBDC. Such was the case in the Bahamas, where the population was begin-ning to become increasingly unbanked due to the downsizing of their commercial bank-ing sector, as such the country was an ideal candidate for the introduction of the “Sand Dollar” (Wolinsky, 2020, p. 1). In this case, the commercial banking sector is able to save costs by not having to go to more remote areas thanks to the existence of the CBDC and instead the CBDC increases the common welfare of the country and does not eat into the profits or customer base of the commercial bank and rather relieves the burden off the banking sector. There is definitely a lot of potential for emerging markets with large portions of unbanked and dispersed populations that can profit from the introduction of a retail CBDC. One example where this would be viable and where further research is needed would be Mongolia, which has significant economic growth yet still has remote and hard to access branch locations within the country and where much of the popula-tion remains unbanked. Such regions could definitely profit from greater accessibility and financial inclusion through the introduction of a retail CBDC, which in turn could help such remote and rural areas to thrive more economically. Other ideal candidates might be island countries such as the Bahamas, like the Philippines or Malaysia, where the smaller islands are more difficult to reach and thus cash handling and physical bank-ing becomes quite costly, especially in times of natural disasters. In economically highly developed countries with low cash usage and high private virtual money usage, it also makes sense to replace the costly cash service with a retail CBDC as in the case of Sweden and South Korea. Both countries have very high digital payment rate and rapidly declining cash usage, thus it makes perfect sense that both countries have pilot projects to test out retail CBDCs to replace cash as it would be cost saving for the commercial banking industry as well as the central bank. South Korea has started the testing process in August 2021 and it will come to an end at the end of June 2022 (Anders & Hong, 2021). South Korea’s consumer fintech and point of sale payments sec-tor is extremely modernised with the two local tech giants Naver and Kakao taking the top spots when it comes to private virtual payment systems, They can be used virtually anywhere in the whole country, to the extent that cash usage is now even discouraged and so has a comparably more limited functionality. As with Sweden, where the pay-ment system Swish makes cash usage decline even faster, South Korea’s cash usage is also in fast decline, thus both of these countries could be almost entirely cashless in a few decades. These two countries have the most resemblance to China, as both coun-tries are economically developed, have declining cash usage and the market is dominat-ed by virtual payment systems. In a developed country like Switzerland where most of the population is banked, most of the money creation is done by commercial banks and only a small portion is done by the central bank (D. Prader, personal communication, 21 February, 2022). Thus, if a re-tail CBDC should be introduced, the whole money creation process as we know it in such countries is disturbed and the central bank would itself have to perform all credit creation. However, it is questionable if the central bank has the capabilities or the will-ingness to do so. If the money creation process is disturbed and private money is substi-tuted, CBDCs may pose a great risk to financial stability and the central bank’s balance sheet (X. Lavayssière, personal communication, 21 April, 2022). However, if we have fraudulent and untrustworthy private participants that need to be controlled, it may be in the best interest of the common welfare that the central bank takes over control via CBDC. In some countries, the central banks really have the best interest of their popula-tion at heart and want to help their population thrive and protect them against usurious and extractive private financial intermediaries (M. Takemiya, personal communication, 24 February, 2022). A more peripheral improvement is in the greater logistical efficiency that a CBDC can offer. Retail demand and consumption patterns are clearly moving towards a more dig-itised world and the Covid 19 pandemic has only accelerated existing trends such as contactless payments and declining cash usage. It is clear that the printing and mainte-nance of cash and coins is a costly system both for the central bank and commercial banks and would be prudent to modernise our payment systems and make them at the same time more efficient, faster and safer. Furthermore, in countries where inflationary pressures have begun to devalue the currency, menu costs alone would be a prudent reason to modernise the domestic financial system with a retail CBDC. 6.4. Credit & Lending The main business of large commercial banks is taking commercial deposits and then giving out long-term credit and earning the interest rate margin differential; however, if you now take away the deposits, there is no more money there for the banks to give out credit (D. Prader, personal communication, 21 February, 2022). Thus, if retail CBDCs should crowd out commercial bank deposits, banks would face a real challenge when it comes to their credit and lending business, as it would remove one of the core compo-nents required for the basic functionality. As previously mentioned, will the commercial banks then turn to costlier forms of funding such as wholesale funding which in turn will have detrimental effects on lending in the end. The question then arises where the demand for credits will be fulfilled. If the central bank is uniting all financial business under its roof, then maybe it is possi-ble that the central bank then holding all the deposits, will have to give out credits. However, the central bank lacks the know-how and the personnel to give out credit as of yet (D. Prader, personal communication, 21 February, 2022). In this position a central bank would have to build up completely new expertise that it does not have, in order to fulfil many of the roles traditionally assigned to commercial banks. It is clear that central banks lack the proximity to depositors and thus are not able to rate credit worthiness, which banks have been doing so far and have expertise in this area (D. Prader, personal communication, 21 February, 2022). Thus, it is clear, that central banks do not want to take over the whole banking sector business and its risks (Anonymous, personal com-munication, 11 March, 2022), they would have to find a way not to crowd out commer-cial banks and their respective know-how as it would be detrimental to financial stabil-ity and common welfare. Research suggests that CBDC imposes costs to commercial banks via channels such as lower bank profitability, and in turn lower bank resilience, higher bank lending rates or reduced bank lending (BIS, 2021, p. 9). Furthermore, the literature argues that similar effects could arise from the adoption of new forms of private money such as stablecoins (BIS, 2021, p. 9). Thus, when looking at the negative effects of CBDCs, it is also necessary to consider that similar effects can arise from privately issued stablecoins which are already prevalent, while CBDCs may not be rolled out in most of the world as of yet. The BIS (2021, p. 9) argues that with any meaningful take up of CBDC, banks would have to deal with a smaller depositor base and thus would have to turn to alternative funding sources, which in turn, would increase banks’ funding costs. This could mean that loan prices could become mo¬¬¬re sensitive to market conditions (BIS, 2021, p. 10). Furthermore, the need for alternative funding sources may lead to increased reliance on the non-bank sector, which in turn, would lead to a tightened need for supervision and regulation (BIS, 2021, p. 10). Figure 5:Illustrative exercises estimate the potential for impacts on bank profitability and lending if CBDC prompts an outflow in customer deposits The lending rates can have both upward and downward pressures according to the BIS (2021, p. 10): Table 3: Pressure on Lending Rates Upward Pressure on Lending Rates Downward Pressure on Lending Rates Banks’ weighted average marginal fund-ing cost rises, as investors need addition-al compensation for increased risk in their portfolio with long-term wholesale debt. Higher demand by banks for government bonds would result in reduction of gov-ernment bond yields, and thus reducing risk-free rate component of wholesale funding. Decreased bank profitability will lead to an upward shift in lending rates and in turn to decrease in credit demand. Banks could enjoy higher depositor base due to CBDC and could reduce lending rates thanks to broader funding base. Banks could increase lending rates if they lose non-interest income and charge more fees or seek other business activi-ties. Banks could reduce lending rates if they lose non-interest income associated with lending activity. The overall effect of CBDC on lending rates will depend on its exact design and will probably be mixed. Larger banks such as UBS and Credit Suisse in Switzerland that have a higher shares of transaction deposits are most likely to lose deposits to CBDC than smaller private banks, however such large commercial banks may have much better ac-cess to wholesale debt markets than smaller private banks and may be more resilient than expected (BIS, 2021, p. 10). Even though there is a lot of legitimate concern regarding the introduction of new finan-cial instruments such as CBDC and stablecoins, they also offer new opportunities for innovation in the financial system, which in turn, may benefit banks and financial stabil-ity overall (BIS, 2021, p. 11). Challenging the status quo always seems a little risky and dangerous, however, the times are changing and our financial systems need to adapt to our changing needs and ways of life as well and offer more competitive and diverse fi-nancial system. A more diverse financial system could increase financial resilience of the overall system and benefit everyone (BIS, 2021, p. 11). By allowing more competition and new entrants in the financial system that may be able to lend, lending rates overall may actually decrease. Non-bank credit would play a crucial role in replacing some of the bank lending directly, leading to higher levels of non-bank finance in the future (BIS, 2021, p. 11). While it is desirable to have more diverse forms of finance, it is undeniable that non-bank finance will not be a perfect substitute for bank finance (BIS, 2021, p. 11) as they lack the know-how and expertise of banks for lending. So, either non-bank finance players would have to build up such know-how and expertise, or banks will stay relevant when it comes to lending especially with specialist information (D. Prader, personal communication, 21 February, 2022). 6.5. Increase of Banks’ Reliance on Central Bank Credit? By issuing a retail CBDC, the central bank becomes a financial intermediary for house-hold savings which it may not necessarily want to become (Bindseil, 2019, p. 317). Were it to take this role, the central bank would then need to reinvest the proceeds from the savings it receives as a financial intermediary. Bindseil (2019, p. 317) argues that the central bank could reinvest those proceeds in the form of loans to banks, collateralised with high quality securities or bills of exchange. Furthermore, it is argued (Bindseil, 2019, p. 317) that due to high outstanding levels of government debt in developed economies related to quantitative easing portfolios, there is scope for CBDC to be matched on the central bank asset side with higher holdings of government bonds such that neither: 1. Reliance of banks on central bank credit would have to increase nor 2. That the central bank would have to hold a portfolio of securities heavy on credit risk. Once the quantitative easing portfolios have been matched with corresponding CBDC, the central bank can still attempt to minimise the impact of any expansion of its balance sheet by diversifying its exposure to the private sector by taking measures such as e.g. credit operations with banks against a broader collateral set (Bindseil, 2019, p. 317). The implementation of a retail CBDC might therefore bring about a more risk heavy ex-posure of central banks to the private sector. The central bank would also have to play the same role that is currently taken on by commercial banks in the economy as a finan-cial intermediary as well as a credit allocator (D. Prader, personal communication, 21 February, 2022). However, Bindseil (2019, p. 317) argues that only once CBDC takes on an even larger role than desired, does such an issue around the centralisation of credit emerge. Fur-thermore, it is argued that if the ECB re-evaluated its collateral framework to include new asset classes, banks would then be able to provide sufficient collateral for the ex-tended amount of central bank credit needed (Bindseil, 2019, p. 317). It is assumed that by issuing CBDC, the central bank would have to play a much larger role as credit pro-vider to the economy and to banks than has previously been the case. In spite of this, the degree of centralised credit that such a course of action would create remains debatable. 6.6. Infrastructure & Interoperability Depending on the infrastructure choices made by the central bank between a conven-tional centrally controlled database or a novel distributed ledger, commercial banks may have to adapt accordingly and have their systems be interoperable. Conventional and DLT-based infrastructures both store data multiple times and in physically separate lo-cations for maximal redundancy, however the primary difference lies in how the data are updated (Auer & Böhme, 2020, p. 92). In conventional databases one authoritative node controls multiple physical nodes where the data are stored in a clear hierarchy, while with DLT-based systems the ledger is jointly managed by different entities in a decentralised manner (Auer & Böhme, 2020, p. 92). Thus, commercial banks running their own nodes would have to play completely different roles depending on the type of infrastructure. In addition, “one of the main advantages of having a distributed ledger technology platform with a relatively high degree of standardisation is that it allows for the uncomplicated onboarding of multiple small and heterogenous actors onto the net-work” (A. Khan, 16 November, 2022), instead of only being accessible to large institu-tions. Figure 6: Elements of decentralisation: DLT and token-based access In a consensus-based mechanism such as the DLT, banks would play a much larger role than in a conventional centralised system and would have to adapt accordingly. Unfor-tunately, the overhead needed for the consensus-based system also causes DLTs to have a lower transaction throughput than conventional architectures (Auer & Böhme, 2020, p. 92). The reason why DLT has not been able to enjoy mass adoption yet, is the lack of scalability as we have seen in the example of Bitcoin and its issues with cost prohibitive transaction verification, mining and double spending risk (Kang & Lee, 2018, p. 2). DLT is currently not scalable, not energy efficient and falls short in payment finality (Griffoli, et al., 2018, p. 9). However, a DLT system may still leave room for future innovations and payment efficiencies. The key vulnerability of DLT systems has been the consensus mechanism (Auer & Böhme, 2020, p. 93), which may pose new challenges when it comes to cyber-security for banks. Depending on the design of the CBDC, banks will have to adapt accordingly, which could well present commercial actors with a challenging path to digitisation in the future. Whether a CBDC has token- or account-based access completely changes this outlook, not only for the central bank but equally for those larger commercial banks that would play an integral role in any such new system. Since a traditional account model ties ownership to an identity (Auer & Böhme, 2020, p. 93), this type of access mecha-nism may be easier to manage for banks as they are accustomed to such a model at pre-sent. Token-access is tied to the knowledge of a private key, and to the ensuing encrypt-ed value matching with a public key. By contrast, such a model ensures universal access and would offer good privacy by default (Auer & Böhme, 2020, p. 94). Even though there are advantages to this type of token-based access, its overall scalability has been quite limited so far and it remains yet to be seen whether DLT systems are able to han-dle the sheer volume of informational throughput from micro transactions that a retail CBDC would entail. However, privacy is widely recognised as a human right (Griffoli, et al., 2018, p. 10) and thus token-based access would definitely be advantageous when searching for minimally invasive technology. Taking this into consideration, it is there-fore not possible to simply dismiss DLT systems altogether due to their shortcomings in terms of scalability and throughput just yet. Lastly, it is evident that there is a search going on for “minimally invasive tech”, as this would ensure the least possible disrup-tion to the whole system (A. Khan, personal communication, 16 November, 2022). 6.7. Nominal Interest Rate The Bank of Korea argues that the introduction of deposits in CBDC accounts decreases the supply of private credit by commercial banks, which may raise the nominal interest rate and hence lower the commercial banks’ reserve-deposit ratio (Bank of Korea, 2019). This in turn has negative effects on systemic risk, such as an increased risk of bank runs. However, the Bank of Korea argues that once the central bank can lend all the deposits held in CBDC accounts back to commercial banks, the consequent increase in the quantity of CBDC not requiring reserve holdings would be able to enhance financial stability by increasing the supply of private credit and resultantly lowering the nominal interest rate (Bank of Korea, 2019). The argument by the Bank of Korea is basically that an increase in the quantity of CBDC can improve financial stability by reducing the likelihood of bank runs via an increase in the availability of private credit (Bank of Korea, 2019, p. 2). However, it must be noted that these conclusions by the Bank of Korea are based on a model, which is itself predi-cated on the assumption that the central bank in the model receiving money into its CBDC account would then be willing to lend this amount in its entirety to commercial banks without any requirement of reserve holdings. Thus, it remains to be seen how likely this scenario would actually be in practice, especially as Korea is still in the pro-cess of testing their own retail CBDC. It may be too early to make any prognostications with regard to these effects of CBDCs. Since we still lack any conclusive financial data with respect to credit effects caused by a mass rollout of retail CBDCs, further research looking into these effects will be necessary in the future before conclusions can be drawn. 7. Conclusion There are seven implications that result from a mass retail CBDC rollout and adoption that have been identified in this paper: bank runs, decreases in bank deposits, money creation & cash handling, credit & lending, reliance on central bank credit, infrastructure & interoperability, and lastly nominal interest rates. CBDC in general may make bank runs easier to take part in by making them digital, like-wise legal convertibility would make these runs near instantaneous and of an unprece-dented scale (Kumhof & Noone, 2021, p. 559). Central banks may not just face pressure from within the country, but also from abroad if foreign holdings of a national CBDC are permitted. This effect would be especially pronounced for central bank issuers of safe haven currencies, and countries such as Switzerland could end up facing disproportion-ately large pressure in purchase demand from abroad (D. Prader, personal communica-tion, 21 February, 2022; Anonymous, personal communication, 11 March, 2022). How-ever, there are also arguments claiming that the introduction of a CBDC would not make such a big difference in regard to bank runs today and would just increase the speed (Anonymous, personal communication, 11 March, 2022). Retail CBDCs might lead to a decrease in commercial bank deposits, which would hit large banks that rely primarily on deposit funding especially hard. In turn, banks would have to turn to costlier forms of funding such as the wholesale funding markets (BIS, 2021, p. 6). However, the exact effects on deposits will depend on the specific design parameters of an individual CBDC. There is a big risk that CBDCs could disrupt the private credit creation process, especial-ly when CBDCs replace commercial bank deposits instead of only replacing cash. In the majority of developed and well banked countries like Switzerland, most of the money created in the economy stems from commercial banks. On the other hand, CBDCs have certainly shown their potential to benefit bank accessibility for specific countries such as the Bahamas and Cambodia, which have a geographically dispersed, rural population spread over remote and unreachable terrain. In such a setting, commercial banks do not have to physically handle cash in these remote areas anymore, and regional access to credit has increased markedly as a result. A lower proportion of customer deposits would force banks into costlier forms of fund-ing (BIS, 2021, p. 6). This in turn would lead to lower bank profitability and subsequent-ly to higher credit rates and lower credit demand. This effect would be especially strong for larger institutions such as Credit Suisse or UBS, although stress tests would indicate that such large institutions are more resilient than expected (BIS, 2021, p. 10). The overall effect on credit and lending may turn out to be negative. However, there are also counterfactual arguments that innovations such as CBDC or stablecoins could actually increase overall welfare by leading to an increase of credit volume at higher levels of financial resilience. Bindseil (2019, p. 317) argues that due to the large quantitative easing portfolios of developed economies, there is scope for CBDC to be matched on the asset side of the central bank balance sheet. As a result, there is neither an increased reliance of banks on central bank credit, nor a riskier portfolio held by the central bank. Thus, we can conclude that the centralisation of credit is not necessarily a direct effect of CBDCs. Regarding the infrastructure and interoperability, banks need to concern themselves mainly with the design of a CBDC and whether it will require the conventional centrally controlled database or a DLT system. The main difference of the two systems lies in how the data are updated (Auer & Böhme, 2020, p. 92), and whether this is done centrally or with a distributed consensus mechanism. The main disadvantage to a DLT system is currently that it is not scalable, not energy efficient and that it falls short in payment finality (Griffoli, et al., 2018, p. 9), but DLT may still leave room for future innovations and efficiencies. Banks need to be able to adapt and have systems that are interoperable, whichever design choice the central bank may choose for its CBDC. Furthermore, banks can use the CBDC system as a backbone to innovate and build their own applications, thus, CBDC can even be a way for commercial banks to potentially save costs (M. Takemiya, personal communication, 24 February, 2022). Research by the Bank of Korea argues that if a central bank can lend all the deposits in CBDC accounts back to commercial banks, that this would lead to an increase in the quantity of CBDC not requiring reserve holdings. Such a CBDC implementation would be able to enhance financial stability by increasing the supply of private credit, and in the end lowering the resulting nominal interest rate (Bank of Korea, 2019). However, any such assumptions are based on a largely theoretical model with little sample data to support its findings, and there is still a relative lack of concrete financial or behavioural data that could empirically indicate this to be the case. Although the academic literature does not currently contain a general consensus re-garding the implications on banks, it is clear that the aforementioned areas would likely be affected both practically and legally by any potential changes to payment systems, as well as the disruption of the custodial relationship between commercial banks and de-posits. Furthermore, the introduction of CBDCs seems unavoidable especially in less developed economies such as was the case with Cambodia, and economies with a high degree of digitisation such as China and Sweden. For the foreseeable future, Switzerland does not seem to have any plans to introduce a retail CBDC, however the country may profit from the introduction of a wCBDC. A wholesale CBDC would have far less disrup-tive effects on banks and on the overall population than the retail CBDC, thus more countries may experiment with wCBDCs in the future. Overall, the topic of CBDC is cur-rently a research topic of great interest to central banks and researchers worldwide. Although commercial banks may need to adapt to CBDC in the future, the implications for the banks may not be as negative or disruptive as it may seem at first glance. Rather, CBDC may offer an opportunity for banks to innovate and for the overall economy to be more diversified and stable (M. Takemiya, personal communication, 24 February, 2022). Especially for less developed countries that may not have a well-functioning banking system and a strong dollarisation, CBDC may offer opportunities of cost-saving for commercial banks and a strengthening of their own local currency (M. Takemiya, per-sonal communication, 24 February, 2022; Anonymous, personal communication, 11 March, 2022). The main problem with the retail CBDC would only occur at the point of incidence of a risk shift from commercial banks to the central bank, when commercial banks might to transfer their mortgage portfolios to the central bank in order to obtain CBDC (Anony-mous, personal communication, 11 March 2022). It is not in the interest nor in the pre-sent capability of the central bank to take over the business and risks of the commercial banking sector (D. Prader, personal communication, 21 February, 2022; Anonymous, personal communication, 11 March, 2022). The only way to avoid this problem would be to fix a limit on the amount of CBDC that each citizen is allowed to hold, however, this would defeat the purpose of the CBDC to introduce a new means of transaction, since demand for it as a savings instrument would be low (Anonymous, personal communica-tion, 11 March, 2022). Furthermore, there could be some public misperceptions with regard to the introduction of retail CBDC and the following use of such currency “at point of sale without the need for a bank intermediary”. This may well in fact not be the case, since commercial banks will continue to play an important and sui generis role of some kind in the financial system with or without CBDCs due to the unique status of their legal relationship to clients(X. Lavayssière, personal communication, 21 April, 2022). The main limitation of this research has been the lack of actual live empirical financial transaction data to analyse, as the CBDC research is still a nascent field and not many countries have yet actually introduced these instruments into their economies. Overall, the research on CBDC has split opinions and is still more tentative as a field, this could be due to the lack of hard data and use cases as well as the political contentiousness of unconventional central bank policy. Secondly, the interviews that were conducted with professionals have offered the au-thor some insight into CBDC and its implications, however, their opinions and observa-tions can only bring so much insight, as the interviewees too have limited actual data and experience at hand. Thus, the insights provided were similar to existing academic research and were more generalised observations. Thirdly, this research first set out to mainly analyse the Swiss market, however, due to the lack of willingness of the two major Swiss banks to conduct an interview, this re-search could only establish an overall opinion on CBDC, rather than actually exploring the preparations and stances of the Swiss banking industry from a lower level of ab-straction. This is not necessarily an impediment to drawing worthwhile and notable conclusions, but it is likely the case that the universal banking model will suffer obsta-cles that are stylistically very different to those of the stakeholders that have been pro-filed. For future research on this topic, it is highly desirable to collate empirical data around changes to transaction behaviour and financial balance sheets. Ideally, after a more gen-eralised rollout and implementation of CBDC an event study could be performed. It could also be useful to collate qualitative case study data about the normative reactions to and experiences of CBDC rollout, to draw on empirically observable sample data for more accurate conclusions and forecasts. However, the author believes that it may still take considerable time until such data be made available to research due to the lack of pilot projects and actual rollouts of CBDC at present. In lieu of this, further qualitative research into the variance in significance between the effects of different CBDC proper-ties chronicled here would also help to advance understanding. This could include rank-ing the need for financial inclusion, interoperability, and financial risk by order of priori-ty as well as by potential for larger technological disruption.