abio Panetta, a European Central Bank (ECB) executive board member, spoke about design considerations for a potential digital euro in a speech yesterday. Preliminary analysis indicates the central bank would limit the total central bank digital currency (CBDC) issuance to €1-1.5 trillion ($1.56 trillion). This would help preserve financial stability and reduce bank deposit substitution with holdings limited to €3,000-4,000 per person.
The central banker also revealed the ECB is considering offering interest on the digital euro. The rate would vary with a lower interest rate earned on larger deposits. This should help with “disincentivizing remuneration above a certain threshold” and discourage the use of the digital euro as an investment.
In contrast, many other countries considering a CBDC treat it more like cash with no interest accruing. However, final decisions will be made by the ECB closer to the time of issuance if a digital euro formally gets the go-ahead.
Panetta reiterated the primary motivations behind the CBDC. With increasingly digital payments, the ECB aims to anchor private money to public money.
A second driver is a digital euro would also increase the strategic autonomy of Europe. While specific names were not mentioned, non-European payment systems like Visa and Mastercard currently dominate, which the ECB has frequently raised as an issue. Plus, the stablecoin market is also centered around US players.
Finally, Fabio Panetta said, “we will also strive for the highest standards of privacy and aim to contribute to financial inclusion and foster digital innovation”. This comes alongside the aim to create a simple and easy-to-understand user experience.
This week the ECB closed its targeted consultation with the payments sector as part of its research efforts. Meanwhile, the Centre for European Reform (CER) has doubts about the pursuit of CBDC.
Elsewhere, bangladesh has begun exploring CBDC, whilst Nigeria is extending their eNaira service to improve financial inclusion.
