A group of economists assessing the potential impact of the digital euro argue that limiting access to the upcoming currency is necessary to preserve the current financial system. Their study follows an earlier proposal to limit digital euro deposits at the European Central Bank (ECB) to €3,000 per person.
Limited use is expected to prevent digital euros from becoming too widespread
A report released by the European Central Bank says that Europeans’ access to digital euros needs to be limited to prevent capital flight from commercial bank deposits. The reportwas prepared by a team of experts led by Frank Smets, who heads the European Central Bank’s DG Economic
economists are trying to predict the impact of the Central Bank Digital Currency (CBDC) on the European banking sector (*22*23). In the absence of empirical data, they have taken into account the public reaction to the news that the ECB plans to issue a digital version of the common European currency.
As part of their study released by the monetary authorities on Thursday, the authors conclude that the optimal amount of digital euros in circulation should be between 15% and 45% of the eurozone’s quarterly real gross domestic product (real GDP), that economy’s inflation-adjusted output.
This calculation follows an earlier proposal that central bank digital currency accounts should be capped at 3,000 euros per capita ($3,070 at current exchange rates), proposed by ECB board member Fabio Panetta to ensure sufficient fiat money to support lending. The upper limit is roughly in the middle of the range of 34%.
If European CBDCs are issued without volume limits, the volume of digital currency in circulation would be much larger, potentially reaching 65% of the Eurozone’s quarterly real GDP. That would have a much greater impact on bank valuations and lending, the researchers said.
ECB economists based their analysis in part on public statements by European officials on the design of the digital euro. in June, Panetta said that keeping total digital euro holdings between €1 and €1.5 trillion would have a system and monetary policy, he said.
He also noted that this total amount would be equivalent to the amount of bank notes currently in circulation
. The population of the Eurozone is currently about 340 million, which means that each person would be able to hold between 3,000 and 4,000 digital euros.
In mid-July, ECB officials and President Christine Lagarde said in an article that the research phase of the CBDC project would take at least another year, but also noted that they believe some key principles in its realization are already clear.
Broad acceptance, ease of use, low cost, high transaction speed, security, and consumer protection are attributes that users value, the two bankers said, promising that the digital euro will be a more efficient payment tool than cryptocurrencies.
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