Fabio Panetta (ECB Board Member) stated that the European Central Bank will limit its digital currency holdings in order to protect financial stability. According to the official, it is intended to limit digital cash circulation to a level similar to euro banknotes.
Eurozone’s Central Bank to Keep Total Digital Euro Holdings Below 1.5 Trillion
A digital euro could potentially lead to the conversion of a large share of bank deposits in the euro area into digital cash, Member of ECB’s Executive Board Fabio Panetta warned in a statement at the European Parliament’s Committee on Economic and Monetary Affairs (ECON).
Panetta stated that the principal source of funds for the banks of the Euro Area are deposits. However, he stressed that the authority is closely monitoring the financial and monetary risks involved in the introduction of a central banking digital currency (CBDC). He explained:
If not carefully designed, the digital euro can lead to excessive deposits being replaced. These outflows could be addressed by banks, who can manage the compromise between liquidity risk and funding cost.
Fabio Panetta believes it’s possible to prevent the use of the digital euro, which is still under development, as a form of investment rather than a means of payment. He noted that one of the tools being used by the ECB is to impose quantitative limits on each individual’s holdings.
According to the regulator’s preliminary analyses, maintaining the total of digital euro holdings in the range of 1 to 1.5 trillion would help avoid potential negative effects for Europe’s financial system and monetary policy. According to the banker,
It would also be equivalent to the amount of current banknotes that are in circulation. The current population in the euro zone is around 340 million. This allows for holdings around 3,000-4,000 digital euro per head.
ECB discourages large investments in its digital currency
In parallel, the ECB may also take steps to discourage investments in digital cash by applying “disincentivising remuneration above a certain threshold, with larger holdings subject to less attractive rates,” Panetta added. Panetta said that the bank has yet to determine how to combine these two measures.
Panetta said that in order to reach its goals, the monetary authorities will try to adopt gradually the CBDC. Panetta also indicated that it might take several years until the majority of Europeans have the digital euro.
The official noted that the ECB is committed to simplicity when it comes to technical implementation and user experiences in developing digital currency tools. “We want to provide people with a product that is easy to understand and easy to use,” the board member said. These goals include privacy protection and financial inclusion.
Fabio Panetta also insisted the European Central Bank needs to provide a digital currency of its own to “avoid confusion about what digital money is.” He reiterated previous criticism against cryptocurrencies which, in his view, cannot perform this function and called for closing any remaining regulatory gaps in the crypto ecosystem.
What do you think about the ECB’s intentions regarding the design of the digital euro? Please leave your comments below.
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