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Europe’s Digital Euro Could Be Limited to Ensure Banks Stay Relevant

The ECB could impose a transaction limit for the digital euro, said the central bank’s executive board member Fabio Panetta during a conference hosted Monday. The ECB is considering this move because the digital euro transactions will charge no fees, which could encourage users to move their money out of banks and thereby threaten financial stability in times of turmoil.

ECB Ponders Imposing Transaction and Storage Limits for Digital Euro to Protect Financial Stability

Europe’s central bank digital currency (CBDC) could have transaction and storage limits for individual users, said Fabio Panetta, an executive board member of the European Central Bank (ECB), during today’s conference hosted by the European Commission (EC). While the figures are not yet decided, Panetta provided an example of €3,000 for the store-of-value limit and 1,000 transactions as a monthly threshold.

Panetta explained the ECB is considering the move because a digital euro, as a potential payment method, would not have transaction fees. Because of this, individual users could decide to move their money out of banks completely, which could pose a risk to financial stability during periods of turmoil. Hence the limits.

“If we give access to a means of payment, which is relatively limited, there are no transaction costs because you only need to have a smartphone. There will be risks that people could use this possibility to move, for example, their deposits of other banks or their money out of financial intermediates.”

– Fabio Panetta, an executive board member of the ECB.

Panetta also noted that the digital euro would not replace cash, but rather serve as “an additional option for retail payment.”

EC to Propose Legislative Framework for Digital Euro Shortly

Also during today’s conference, ECB President Christine Lagarde said the EC is set to put forward a legislative proposal on a digital euro soon. A legal framework for the CBDC would provide “all stakeholders [with] the necessary legal certainty to prepare for its possible introduction and send a strong signal of political support,” added Lagarde.

The central bank of France spoke about possible use cases of the wholesale CBDC in September, saying it could notably “contribute to improving cross-border and cross-currency payments.” France was among the first EU members to conduct tests with a digital euro in 2020.

The ECB has launched the investigation phase of a digital euro in October 2021. This phase is expected to take two years, during which the Eurosystem will focus on a potential functional design based on users’ needs.

This article originally appeared on The Tokenist

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