- The Council of the European Union expressed support for the ECB’s digital euro initiative but recommended strict caps for holders.
- Industry experts viewed the move as a safeguard against self-custody, which could significantly lead to a decline in commercial bank deposits.
The Council of the European Union, a group comprising of ministers from the European Union’s (EU) 27 member nations, has backed the European Central Bank’s (ECB) proposed digital euro. The body believes that the central bank digital currency (CBDC) would be key to strengthening the euro currency.
Additionally, the Council viewed the measure as an initiative for improving the EU’s strategic autonomy, economic security, and resilience. However, its members pushed for holding limits on the digital currency.
Reason for the Digital Euro Holding Limits
According to the Council, the holding limit is a necessary safeguard “to avoid the digital euro being used as a store of value and any impact on financial stability.” It recommended that the ECB craft rules on the caps it would allow for online digital accounts and digital wallets. Meanwhile, it reserved the authority to review and recommend the overall ceiling for the digital euro holdings every two years.
Edwin Mata, co-founder and CEO of Bricken, told Coindesk that there’s more to the Council’s strict cap on the digital euro. For him, it was more than the abstract of financial stability.
Mata claimed that the user limits would prevent the digital euro from competing directly with bank deposits. He explained that without the cap, people could self-custody all their digital euro assets, which would shift deposits from commercial banks to the ECB. This could prove troublesome for commercial banks, especially during periods of economic stress, as it could accelerate bank runs.
The Council’s concern echoed the ECB’s earlier warnings about stablecoins. The central bank previously argued that the growing utility of these digital assets could accelerate retail deposit outflows. As a result, it could deprive commercial banks of their funding source and expose them to volatile funding.
Cash is Still a Necessity
Furthermore, the Council highlighted its position that physical euro cash must always be available and accepted in payments. It said the ECB must ban digital cash-only transactions by retailers or service providers, except for goods and services acquired remotely, online, or at unmanned points of sale (PoS).
However, merchants can still inform their customers of their preference for card or digital payment methods.
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