Digital Euro Holdings Shouldn't Be Capped, Study Says

A digital euro system shouldn’t limit users’ holdings, a paper produced for the European Parliament said, arguing that the risks to financial stability of people deserting conventional banks are overstated.

The paper turns on its head central bankers’ conventional wisdom that individuals shouldn’t be allowed more than a few thousand euros' worth of the central bank digital currency to prevent them from using it as a savings vehicle.

The banking industry issued a sigh of relief when Fabio Panetta, a member of the European Central Bank's board, said individual users of the digital currency would be limited to holding around 3,000 euros ($3,317) worth at a time because he wants the CBDC used only for day-to-day payments.

Panetta’s goals for the project are wrong, said the report produced by academic Christian Hofmann at the request of the European Parliament's Economic and Monetary Affairs Committee.

“The key role of a digital euro consists of the important role it can play as a store-of-value option for the public,” said Hofmann, who is an associate professor at the National University of Singapore. “All of this requires that the public’s access to a digital euro is unlimited.”

Even though the study doesn’t bind the parliament, some lawmakers are thinking on similar lines.

“I have strong doubts about the restrictions” on holdings, socialist Dutch lawmaker Paul Tang told the chamber in a debate last week, arguing the CBDC should compete with banks. “A digital euro should be viable – why use something you can hardly hold?”

Central bankers such as Panetta have warned that a mass exodus from commercial banks could choke lending and damage financial stability.

The ECB is due to decide later this year whether to continue with the digital euro project The Bank of England has said that holdings of its own digital pound could also be limited to 10,000 British pounds ($12,480).

Read more: Lawmakers Could Still Nix Digital Euro, ECB’s Panetta Says