Digital euro safeguards – protecting financial stability and liquidity in the banking sector
A digital euro would offer a wide range of
- A digital euro would offer a wide range of
financial stability benefits, including safeguarding the role of public money and
strengthening the strategic autonomy and monetary sovereignty of the euro area in
the digital era. - Keywords: CBDC, digital euro, bank intermediation, financial stability risks.
- A digital euro has the potential to offer a wide range of financial stability
benefits for the digital era. - A digital euro would
stimulate financial innovation among private sector entities and enhance the
efficiency and resilience of the financial system by supporting competition and
diversity within it.3 In addition, a digital euro would strengthen the strategic autonomy
and monetary sovereignty of the euro area. - A digital euro would be designed to minimise risks to the financial system.
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The preparation phase will pave the way for a future decision on whether or not to issue a digital euro.
- When gauging the implications for the euro area banking sector of introducing a
digital euro, take-up would be key, as it would determine the level of deposit
outflows. - In the latter case, the
issuance of a digital euro would not affect banks? balance sheets, since banks would return euro
banknotes to the Eurosystem in exchange for digital euro. - Banknotes and digital euro are two different
types of central bank liability, so a swap between banknotes and digital euro would only affect the
composition and not the size of the Eurosystem?s balance sheet. - In our analysis, we model only the
substitution of commercial bank deposits with a possible future digital euro. - 8
The legislative proposal on a digital euro provides for the inclusion of such safeguards and establishes
specific criteria for the limits, aiming to contain the use of a digital euro as a store of value. - ECB Occasional Paper Series No 346
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The added value of digital euro
safeguards such as holding limits
To understand the benefits of digital euro safeguards, such as holding limits, it
is useful to first consider the implications of introducing a CBDC without
adequate safeguards. - (2022), ?Central bank digital currency and bank intermediation: Exploring different
approaches for assessing the effects of a digital euro on euro area banks?, Occasional Papers, No 293,
European Central Bank, Frankfurt am Main, May. - deciding to adopt the digital euro, and (ii) the average amount of digital euro in a
wallet. - At the same time, as discussed in this paper, the design of a digital euro would
include effective safeguards, such as individual holding limits, to mitigate
potential financial stability risks. - ECB Occasional Paper Series No 346
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an upper bound on the amount of digital euro in circulation, thereby addressing and
limiting financial stability concerns associated with the introduction of a digital euro. - (2023), ?A digital euro: gauging the
financial stability implications?, Financial Stability Review, ECB, November.