European Central Bank: Digital Euro Strictly for Payments Only

The European Central Bank (ECB) has taken steps to reassure the public about its upcoming digital Euro Central Bank Digital Currency (CBDC). In a recent blog post on Feb. 19, ECB officials emphasized that the digital Euro is primarily intended for facilitating payments, not as an investment tool.

Mitigating Risks of Disintermediation

To address concerns from commercial banks regarding potential deposit outflows, the ECB clarified that individual holdings of the digital Euro would be limited. This measure aims to maintain the role of commercial banks in the financial system. Additionally, the digital Euro will not accrue interest and will have no corporate holdings, further discouraging its use for investment purposes.

The ECB outlined a “reverse waterfall” mechanism, which links digital Euro accounts to bank accounts, helping cover any shortfalls from the latter. This mechanism, combined with holding limits and the absence of interest, is designed to mitigate the risk of disintermediation and significant outflows from bank deposits.

European Central Bank Warns Against Stablecoins and E-money

In addition to addressing concerns over the digital Euro, the European Central Bank warned about the risks associated with stablecoins and e-money, including those backed by big tech companies. The ECB highlighted that these non-bank entities may not prioritize the stability of the banking system, potentially posing risks to financial stability.

The ECB released a video highlighting the benefits of the digital Euro, such as safeguards for financial stability. However, it did not address concerns regarding transaction monitoring and surveillance, which could be linked to digital identities.