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ECB ponders €3000 threshold for consumer digital euro holdings

ECB ponders €3000 threshold for consumer digital euro holdings

The European Central bank is toying with the idea of imposing a €3000 limit on consumer CBDC accounts to discourage users from transferring all their cash from commercial banks to the central bank.

The European Commission and European Central Bank are currently working together to investigate the policy, legal and technical questions emerging from a possible introduction of a digital euro.

Having just closed a public consultation on the subject, the ECB is considering whether to start a digital euro project towards the middle of the year as it looks to answer design and technical questions ahead of any decision to actually issue the CBDC.

One of the most thorny issues concerts the impact on commercial banks of a competing digital euro account from the central bank, raising the prospect of a loss of deposits as consumers switch their cash holdings to the CBDC account.

In an interview with Der Spiegel, ECB board Fabio Panetta states that the bank is not interested in competing with commercial banks: "We have explicitly and repeatedly stated that we want the banks to be our partners, not our competitors. We will offer safe money, not financial services. Offering financial services is the role of commercial banks. It would be crazy for us to do so. People already decide today whether to pay with cash, with various cards or online. In future they will have one more digital option, if they wish."

He says the aim would be to discourage large holdings of digital euro.

"We might only allow digital euro holdings up to a certain threshold, or make them unattractive above this amount by charging interest," says Panetta. "For example, the threshold could be around €3,000, which would be far more than the cash requirements of most people today. But this is still under discussion.

If banks do in fact lose deposits, "then we can make more liquidity available to them", he adds.

The ECB is looking with interest at the Chinese pilot trials of a digital yuan, which are currently focussed around the the megacity of Shenzhen.

Asked about a possible trial period, Panetta responded: "That would be a possibility. Trialling the digital euro in different cities would probably be a wise move."

Comments: (1)

Jeremy Light
Jeremy Light - Fourdotzero - London 09 February, 2021, 18:341 like 1 like

For CBDCs to be successful in public use they need to be indistinguishable from other forms of electronic money for the public to adopt them. Otherwise, the public will have to understand the difference between emoney, bank deposits and CBDC, risking mass confusion.

This could happen with the digital euro if it has maximum holding limits, which would flag it as different to bank deposits (emoney in the form of prepaid cards can have holding limits too but this restricts the use and appeal of the products emoney supports).

It is rare to see the public lens considered in CBDC analysis, which in my opinion risks CBDCs being designed with flawed assumptions on public acceptance and adoption.