The Council of the European Union, which amends legislation and urges national governments to adopt EU laws, has expressed support for the European Central Bank’s initiative to consider an official digital currency, characterizing it as an evolution of money and a means to enhance financial inclusion.
In a statement released on Friday, the Council indicated that the ECB must establish limits on the maximum amount that can be stored in online accounts and digital wallets at any given time to “prevent the digital euro from serving as a store of value” in order to mitigate any risks to financial stability.
The Council is composed of government ministers from the 27 EU member states and collaborates with the European Parliament to shape EU legislation. Its support reflects a broad consensus among national governments regarding the design of the central bank digital currency, boosting the chances that future laws will align with the ECB’s vision.
“The holding limits are not merely about abstract financial stability,” remarked Edwin Mata, co-founder and CEO of the tokenization platform Bricken, in an interview with CoinDesk. “They aim to stop the digital euro from competing directly with bank deposits. If individuals could hold unlimited digital euros, there could be a swift shift of deposits from commercial banks to the ECB, particularly in times of stress, prompting quicker bank runs.”
The ECB has raised alarms over similar threats posed by stablecoins. Officials have highlighted dollar-pegged assets such as Tether’s USDT and Circle Internet’s (CRCL) USDC, warning that “significant growth in stablecoins could lead to retail deposit withdrawals, diminishing a key funding source for banks and leaving them with a more unstable funding structure.”
Understanding digital euro saving caps
The ECB’s apprehensions extend beyond vague notions of “financial stability,” commented Pedro Birman, CEO of Quadra Trade.
“In the euro system, much of the money is generated by commercial banks through lending,” he explained during an interview. “If digital euros were freely kept as stores of value, a substantial transition away from bank deposits towards self-custodied ECB currency would shrink banks’ deposit bases. This would directly limit credit creation, increase banks’ funding costs, and act as an unintended monetary tightening, particularly during times of stress.”
This concern is echoed by others who perceive the caps as a vital design element to safeguard the financial system’s balance.
“The message is clear: the digital euro is designed as a payment system, not as a balance sheet, and these ceilings are established to ensure it never become one,” stated Amber Ghaddar, founder and managing director at The 200Bn Club and Nexera.
According to Ghaddar, substantial digital-euro holdings could also weaken the efficacy of monetary policy, potentially compelling the ECB into challenging decisions such as whether to pay interest on retail central-bank money or relinquish some control over interest rates.
Defending banks from competition
However, some remain cynical. While the ECB positions its policy within the framework of financial stability, the effect may also serve to protect banks from emerging competitors, argued Jonatan Randin, senior market analyst at PrimeXBT.
He referenced ECB data released in February 2024 which suggested that holding limits are meant to preserve the operational function of commercial banks and safeguard the corporate deposit base. A Copenhagen Economics study estimated this approach could reduce banks’ net interest income by an average of 7%, escalating to 13% for smaller institutions.
“Banks thrive on retaining customer deposits and lending those funds,” emphasized Randin. “A digital euro lacking strict limitations would offer citizens a risk-free choice, diminishing banks’ access to affordable financing.”
Arthur Breitman, founder of the Tezos blockchain, highlighted a similar concern. He noted that this measure is designed to avert sudden deposit migration from commercial banks into what would effectively be riskless central-bank currency. While this safeguards banks’ funding structures, it also demonstrates how dependent the existing system is on commercial banks for credit provision.
Charles d’Haussy, CEO of the dYdX Foundation, noted the stark contrast in international approaches. “Europe is heavily invested in a sovereign digital CBDC, known as the digital euro, to maintain monetary control and privacy within a thoroughly regulated environment,” he stated. “In contrast, much of the rest of the world, particularly the U.S. and dollar-driven regions, leans towards private stablecoins for their speed, innovation, and global reach.”
Ultimately, this debate epitomizes a fundamental tension inherent in the design of central bank digital currencies: how to provide the public with a reliable, modern payment solution without undermining the existing financial system. The ECB and EU lawmakers view holding limits as essential safeguards to uphold that equilibrium, while critics caution that these very limits might restrict the digital euro’s functionality and shield incumbents from real competition.
Read more: ECB’s Christine Lagarde shifts focus to digital euro rollout after holding rates
