it, unless a central bank is prepared to exchange it a fixed rate against a banknote. the monetary history of the united states in the 19 th century illustrates this point quite nicely ( gorton, 1996 ). 5 / 9 bis - central bankers'speeches absent banknotes, the central bank would need to provide this anchor in another way. hence the retail central bank digital currency, which would allow households to hold small accounts with the central bank. but then comes the question of the impact of retail cbdcs on bank deposits, hence on bank stability, also hotly debated ( slide 14 ). the worry of the banks is twofold : ( i ) a permanent reduction in deposits, reducing their intermediation capacity ( fernandez - villaverde et al, 2021 ; tenner et al. 2023 ), and / or ( ii ) higher risks of bank runs in crisis times due to high substitutability of deposits with cbdc ( kumhof and noone 2018, european banking federation 2021, angeloni 2023 ). the first risk ( reduced deposits ) can be mitigated by holding limits, zero remuneration, waterfalls ( automatic transfers from cbdc to linked bank accounts, when ceiling is reached ) and reverse waterfalls ( i. e. automatic transfers from linked bank deposits to cbdc accounts, when needed ). at the limit, there could be no need to hold a positive cash balance on cbdc accounts ( and this is what is envisaged in the euro area for corporations ). like banknotes, retail cbdc will be a means of payment rather than a store of value ( caccia, tapking and vlassopoulos, ecb 2024 ). but unlike for banknotes, there will be holding limits. hence it is far from granted that household will hold more cbdc balances tomorrow than they held banknotes yesterday. the second risk ( volatile deposits ) can also be mitigated by cbdc holdings limits ( bindseil 2020 ; cipollone, 2024 ). as i said, there is currently no holding limit for banknotes, which in theory involves larger potential for a bank run. in fact, recent bank liquidity crises were driven by large, unsecured depositors runs ( svb ), or wholesale market freeze ( 2008 crisis ), or money market outflows ( credit suisse ), rather than by small depositors ( see, e. g., jiang et al

ben s bernanke : challenges for the economy and state governments speech by mr ben s bernanke, chairman of the board of governors of the federal reserve system, at the annual meeting of the southern legislative conference of the council of state governments, charleston, 2 august 2010. the original speech, which contains various links to the documents mentioned, can be found on the us federal reserve system ’ s website. * * * it is a pleasure to be able to address this conference of southern leaders and legislators. as some of you may know, i was raised only about 150 miles from here in dillon, south carolina, and remain connected to this area through family ties. our nation has endured a deep recession that in turn was triggered by the most severe financial crisis since the great depression. today, the financial crisis appears to be mostly behind us, and the economy seems to have stabilized and is expanding again. but we have a considerable way to go to achieve a full recovery in our economy, and many americans are still grappling with unemployment, foreclosure, and lost savings. the recession – as all of you know too well – has also battered the budgets of state and local governments, primarily because tax revenues have declined sharply. many states and localities continue to face difficulties in maintaining essential services and have significantly cut their programs and work forces. these cuts have imposed hardships in local jurisdictions around the country and are also part of the reason for the sluggishness of the national recovery. today, i will touch on current economic and financial conditions and then turn to some nearterm and longer - term challenges – fiscal and otherwise – facing state governments. the economic outlook after a precipitous decline in late 2008 and early 2009, the u. s. economy stabilized in the middle of last year and is now expanding at a moderate pace. while the support to economic activity from stimulative fiscal policies and firms ’ restocking of their inventories will diminish over time, rising demand from households and businesses should help sustain growth. in particular, in the household sector, growth in real consumer spending seems likely to pick up in coming quarters from its recent modest pace, supported by gains in income and improving credit conditions. in the business sector, investment in equipment and software has been increasing rapidly, in part as a result of the deferral of capital outlays during the downturn and the need of many businesses to replace aging equipment. at the same time,