Some European economists have proposed that protecting the present financial system is important. Hence, they are asking that the EU restricts the access of Europeans to the digital Euro.
Meanwhile, these economists have been accessing the likely effects of a CBDC on the European economy. Earlier, a group issued a proposal for the EU to limit individual CBDC deposits at the ECB (European Central Bank) to €3,000 per individual.
ECB Calls For Limitation On European’s Access To The Digital Euro
The ECB recently published a report calling for a restriction on the digital Euro. The bank believes that Europeans should not have total access to the CBDC.
This is to prevent them from moving funds from commercial banks and converting them to the CBDC. Before now, the economists have been working to predict the possible effect of a CBDC on Europe’s financial sector.
Meanwhile, there has not been any empirical data for the team to work with. Hence, they used the reactions of the public to the news of a potential CBDC.
According to their study, the optimum amount of CBDC that should be in circulation must be from 15% to 45%. Also, this depends on the quarterly real GDP of the eurozone.
This calculation follows a former suggestion that the ECB should cap the digital Euro at €3,000 per individual. Fabio Panetta, a board member at the ECB, also proposed a limit of 34%.
Limit On Digital Euro To Favor Banks
According to Panetta, a 34% limit will ensure that a country has enough paper currency for lending. Meanwhile, using the CBDC without a limitation on quantity will lead to a high amount of it in circulation.
This would reach about 65% of the Euro area’s quarterly real GDP. According to the economists, this would hugely affect bank lending and valuation.
Last month, Panetta said the total CBDC holdings should be between €1 to €1.5 trillion. According to the executive, this would prevent any negative effect on the continent’s monetary policy and financial system.
Earlier in July, Panetta and Christine Lagarde (ECB President) said the CBDC investigation phase would take about an extra year. However, they highlighted the attributes of the CBDC that users want.
These include security, transaction speed, low costs, easy usage, consumer protection, and wide acceptance. Also, both bankers said the CBDC would be far more efficient than crypto for payment.
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