Total digitaleuro holdings may be limited to 1.5 trillion, ECB’s Panetta says.
With concerns about financial stability in mind, the European Central Bank plans to limit digital euro holdings, according to Board Member Fabio Panetta. The plan is to have a maximum amount of digital cash in circulation similar to that of euro banknotes today, the official unveiled.
If not well designed, a digital euro could lead to the substitution of an excessive amount of these deposits. Banks can respond to these outflows, managing the trade-off between funding cost and liquidity risk., which is still under development, as a form of investment rather than a means of payment. One of the tools the ECB intends to employ is imposing quantitative limits on individual holdings, he noted.
This amount would be comparable with the current holdings of banknotes in circulation. As the population of the euro area is currently around 340 million, this would allow for holdings of around 3,000 to 4,000 digital euro per capita.In parallel, the ECB may also take steps to discourage investments in digital cash by applying “disincentivising remuneration above a certain threshold, with larger holdings subject to less attractive rates,” Panetta added.
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