ECB Considers Capping Digital Euro in Circulation at 4,000 per Capita, Panetta Reveals – According to ECB Board Member Fabio Panetta, the European Central Bank (ECB) aims to limit digital euro ownership due to worries about financial stability. According to the official, the goal is to have a maximum amount of digital cash in circulation equivalent to that of euro banknotes today.
In a statement to the European Parliament’s Committee on Economic and Monetary Affairs, member of the ECB’s Executive Board Fabio Panetta warned that a digital euro might lead to the conversion of a considerable share of bank deposits in the euro area into digital cash.
Deposits are the primary source of funding for euro – area banks, according to Panetta, who also stated that the authority is closely monitoring the financial and monetary risks linked with the establishment of a central bank digital currency.
He explained:
“A digital euro, if badly designed, could result in the replacement of an excessive amount of these deposits. Banks can respond to these outflows by balancing the cost of funding against the risk of liquidity.”
Fabio Panetta believes it is possible to prevent the digital euro, which is still under development, from being used as an investment option rather than a means of payment. Quantitative limits on individual ownership is one of the tools the ECB plans to use, he noted.
According to preliminary analyses by the regulator, keeping total digital euro holdings between 1 and 1.5 trillion euros would help avoid negative consequences for Europe’s financial system and monetary policy.
The banker went on to say:
“This amount is comparable to the current banknote holdings in circulation. Given the euro area’s current population of roughly 340 million, this would imply for each capita digital euro assets of around 3,000 to 4,000 euros.”
And meanwhile, the ECB may take efforts to discourage digital cash investments by “disincentivizing remuneration above a particular threshold, with greater holdings subject to less attractive rates,” according to Panetta. The bank has yet to decide how the two measures would be combined.
The monetary authority would seek a gradual acceptance of the CBDC to meet its goals in this regard, Panetta said, predicting it will take several years before a majority of Europeans own the digital euro.
When designing tools for the digital euro, the ECB would aim for simplicity in terms of technological implementation and user experience, according to the official. “We want to give people a product that is simple to comprehend and use,” stated one of the board members. Among the objectives are the protection of privacy and the promotion of financial inclusion.
Also Read: Crypto Payments Possible if They Don’t Penetrate Russia’s Financial System, Central Bank Says
To “prevent confusion about what digital money is,” Fabio Panetta also believes the European Central Bank should issue its own digital currency. He restated his prior criticisms of cryptocurrencies, which he believes are incapable of performing this function, and urged the crypto ecosystem to close any remaining regulatory gaps.
