Europe considers applying limits to the digital euro

The European Commission wishes to define thresholds in terms of detention and transaction concerning the use of central bank digital currency. These limits would be determined by the ECB.

In 2022, Fabio Panetta, member of the ECB’s Executive Board, estimated that digital euro holdings should not exceed 1,000 to 1,500 billion euros, or between 3,000 and 4,000 euros per capita.

This proposal was justified by the desire to avoid negative effects on the financial system and monetary policy. The European Commission seems to endorse this approach.

Restrictions in the name of financial stability

The executive plans to unveil its roadmap for CBDC. Its proposals include thresholds for the digital euro. These would apply to the holding of digital currency as well as to the amount of transactions, reported Wednesday Bloomberg.

The press agency was able to consult a preliminary version of the Commission’s text, which would entrust the European Central Bank to determine these two thresholds. With regard to transactions, the ECB recently advocated “smooth” integration in the payments sector.

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The motivation behind this political choice to set a ceiling on holdings and transactions is to be compared with previous declarations by Fabio Panetta :

In order to ensure the stability of the financial system, the availability of credit and the implementation of monetary policy, the use of the digital euro as a store of value may be subject to limits”, justifies the European executive.

Discussions between European finance ministers

The text remains at the draft stage for the time being. It will be discussed this Thursday, June 15 in Luxembourg at a meeting of eurozone finance ministers. EU governments are directly involved in defining the contours of the future digital euro.

The preserving stability thus remains a permanent point of attention for European executives. Political leaders also insist on the role of commercial banks and the balance to be struck in terms of privacy protection.

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Next meeting scheduled for June 28 will examine the European digital currency. In the meantime, the Commission’s project is likely to evolve. In particular, it could take into account a recent study commissioned by the Parliament.

Parliamentary report calls for unlimited access

In this work, a researcher questions the hypothesis of restrictions imposed on the holding of future CBDC of the Old Continent. He even questions the value of capping, deeming the risks invoked to be surmountable.

The concerns expressed by the ECB and other central banks about the risks associated with sudden outflows of liquidity from bank deposits to CBDCs are realistic”, acknowledges the author.

But he adds: “These risks are manageable”. What’s more, “a digital euro could even support financial stability in the event of a banking crisis “. The report argues that with an adapted implementation of CBDC in “unlimited”, the gains would outweigh the risks.

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