# A Digital Currency Architecture for Privacy and Owner-Custodianship
## 4 Analysis
### Impact on Liquidity  
The issuance and use of CBDC could become a useful tool for central banks in managing aggregate liquidity. For example, were CBDC to be widely held and adopted for use, it could lead to a shift in aggregate liquidity, which refers to the assets being used and exchanged and which carry a liquidity premium [19]. Under certain models, a CBDC would lead to efficient exchange, particularly given that it is a low cost medium of exchange and has a stable unit of account, and particularly in the case wherein the digital currency (as we propose it) is being used in a broad range of decentralized transactions, and allows for monetary policy transmission channels on trading activity to be strengthened. The central bank would have at its disposal certain capabilities in controlling the supply and price of CBDC, including through the use of (dis)incentes to generate a higher liquidity or lower premium in CBDC and in bank deposits, subject to where investment frictions exist in a much more targeted way [19]. Moreover, CBDC can be used as intraday liquidity by its holders, whereas liquidity-absorbing instruments cannot achieve the same effect. At present, there are few short-term money market instruments that inherently combine the creditworthiness and the liquidity that a CBDC could potentially provide. CBDC, therefore, could play an important deterrent role against liquidity shocks.  
One possible concern about CBDC is that individuals might run from bank deposits to CBDC during a financial crisis. Although such a run is conceivable, we argue that it is no more likely with our proposed system for CBDC than it is with cash. Indeed, a CBDC could support replacing private sector assets into risk-free assets to address the need for safe assets, particularly given that although bank deposits are broadly insured up to some amount, they continue to exhibit credit and residual liquidity risks. At the same time,however, limits to the rate at which CBDC can be withdrawn from financial institutions, and we imagine that individuals would be subject to limits on their withdrawals of CBDC from their bank accounts, just as they are subject to limits on their withdrawals of cash. If a run were underway, its pace would be limited by such limits, and in principle, the government could even ask banks to impose tighter limits or to disallow withdrawals from banks entirely in the event of an emergency. Moreover, if the government chooses to guarantee bank deposits up to an amount, then the other benefits afforded by such deposits coupled with that guarantee would disincentivize such a run. In other instances, the cost-benefit and risk-reward profile would require more specific analysis on a jurisdiction by jurisdiction basis. Furthermore, expiration dates on digital assets, and the lack of interest payments can strongly disincentivize hoarding. Because we recognize significant utility for bank deposits even in the presence of CBDC, we suggest that CBDC would be be complementary to deposits and that banks would play a fundamental role in the issuance and storage of CBDC tokens.