Keywords in this story
Bank, banks, ceiling, CBDC, Central bank, Circulation, deposits, Digital currency, digital euro, ECB, economists, financial system, loan, Limit, paper, report, restrict, study
A group of economists assessing the potential effects of a digital euro have insisted that restricting access to future 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.
According to a report published by the European Central Bank, Europeans’ access to a digital euro should be restricted to prevent capital flight from deposits in commercial banks. The document was produced by a team of experts led by Frank Smets, who heads the regulator’s Directorate General for Economics.
Economists have tried to predict the impact of a central bank digital currency (CBDC) on the European banking sector. In the absence of empirical data, they took into account public reactions to news about the ECB’s plans to issue a digital version of the common European currency.
As part of their study published Thursday by the monetary authority, the authors conclude that the optimal amount of digital euros in circulation should be between 15% and 45% of the quarterly gross domestic product (real GDP) of the euro zone, its inflation-adjusted output of the economy.
The calculation comes after a previous suggestion that central bank digital currency accounts should be capped at €3,000 per person ($3,070 at current exchange rates). This limit, proposed by Fabio Panetta, a member of the ECB’s executive board, to ensure that there is enough fiat money to support lending, is roughly in the middle of the range, at 34%.
If the European CBDC were to be issued without limiting its quantity, the amount of digital currency in circulation would be much larger, potentially reaching 65% of quarterly eurozone real GDP. This would lead, according to the researchers, to larger effects on banks’ valuations and lending.
ECB economists partly based their analysis on public statements by EU officials regarding the design of the digital euro. In June, Panetta said keeping total digital euro holdings between €1 and €1.5 trillion would help avoid potential negative effects on Europe’s financial system and monetary policy.
He also noted that this total would be comparable to current holdings of banknotes in circulation. With the population of eurozone countries currently around 340 million, this would hold between 3,000 and 4,000 digital euros per capita.
In mid-July, the head of the ECB and the president of the bank Christine Lagarde noted in an article that the investigation phase of the CBDC project will take at least another year, but also marked a few key principles in its realization. that they already consider clear.
Wide acceptance, ease of use, low costs, high transaction speeds, security and consumer protection are the attributes that users would appreciate, the two bankers said, promising that the digital euro will be a more efficient payment method than cryptocurrency.
Do you expect the ECB to limit the digital euro in circulation? Share your thoughts on the subject in the comments section below.
Image credits: Shutterstock, Pixabay, Wiki Commons, Yavuz Meyveci