The president of Germany’s central bank has highlighted the ongoing debate about the holding limit for the digital euro, Europe’s central bank digital currency ( CBDC). He noted that recent Bundesbank research indicates that the optimal amount could be in the range of 1,500 to 2,500 digital euros per person.
Digital Euro Holding Limit: Debate Continues
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‘The Jury Is Still Out Here’
Joachim Nagel, President of the Deutsche Bundesbank, the central bank of Germany, delivered the Vigoni Lecture in Rome on Monday. He emphasized the digital euro’s potential to enhance European unity and modernize the continent’s financial system.
“One argument made against the digital euro is that it might increase risks to financial stability,” he explained. “If the digital euro could be held in large amounts, periods of banking distress could see shifts from deposits to digital euro accounts or wallets. This could contribute to a systemic bank run where everyone is worse off.” However, he stressed, “There exists a very simple remedy for this risk: holding limits.”
Regarding the optimal holding limit for the digital euro, Nagel stated:
I think the jury is still out here … The recent Bundesbank research that I just mentioned indicates that the optimal amount could be in the range of 1,500 to 2,500 digital euro per person.
Nagel also mentioned a paper by European Central Bank (ECB) economists that “suggested that a holding limit of 3,000 digital euro per person would be successful in containing the impact on bank liquidity risks even in extremely pessimistic scenarios.”
The Bundesbank President explained: “A holding limit implies that the amount of digital euros a customer can hold is capped at a specific amount. And this means that only a limited amount of deposits can be withdrawn, which will considerably reduce the risk of a bank run during times of distress.”
Nagel emphasized five key reasons for supporting the digital euro: adapting to increasing digital payment trends, reducing reliance on non-European digital payment systems, fostering innovative private sector payment solutions, ensuring high levels of privacy, and unifying the euro area by providing a common digital payment method. Moreover, he noted that the digital euro could enhance overall financial stability by decreasing bank leverage during normal times.
What are your thoughts on the digital euro implementing a holding limit? Share your opinions in the comments section below.
