The EU Council Supports Digital Euro With Limits to Prevent Massive Deposit Flight
The digital Euro is moving forward but under close scrutiny. The EU Council has officially expressed its support for the central bank digital currency project led by the European Central Bank, while validating a key principle: limiting the amounts citizens can hold. The goal is clear. To make the digital Euro a modern payment tool, not an alternative to bank deposits.
This political signal is far from insignificant. The Council, which brings together ministers from the 27 member states and co-legislates with the European Parliament, confirms a convergence between governments and the central bank on the architecture of the future digital Euro. In other words, upcoming legislative texts should incorporate this logic of limits.
A Digital Euro Designed for Payment, Not Savings
It aims to prevent the digital Euro from directly competing with bank deposits. If individuals could hold an unlimited number of digital Euros, deposits could be instantly transferred from commercial banks to the ECB, especially in times of crisis, significantly accelerating bank runs.
In its communication, the Council emphasizes the need to prevent the digital Euro from becoming a store of value. Without limits, deposits could migrate massively from commercial banks to the ECB, especially in times of financial stress. A scenario deemed dangerous for the system’s stability.
The fear is simple: if households can hold a central currency without constraint, perceived as completely risk-free, the banks lose part of their deposit base. In the euro area, these deposits fund most of the credit. A rapid shift to the digital Euro would reduce banks’ ability to lend, increase their funding costs, and act as an unintended tightening of monetary policy.
This view has long been advocated by the European Central Bank, explicitly comparing this risk to that posed by private stablecoins.
Stablecoins in Focus, Banks Under Protection
The ECB has already highlighted the dangers of a massive adoption of dollar-pegged stablecoins, such as Tether (USDT) or Circle (USDC). According to the bank, their growth could lead to outflows from bank deposits, weakening a key source of funding for European institutions.
For some observers, the limits on the digital Euro are as much about financial stability as they are about protecting the banking model. One surprising study cited by analysts estimates that an unlimited digital Euro could reduce banks’ net interest income by 7% on average, and up to 13% for smaller structures.
A Bold Political Choice, Yet Contested
Supporters of the project embrace this framework. The message is clear: the digital Euro will be a payment rail, not a savings account. Without limits, the ECB would have to choose between paying interest on the digital Euro, risking disruption to monetary policy transmission, or accepting a loss of control over rates.
Critics, on the other hand, see it as constrained innovation. By deliberately limiting the utility of the digital Euro, the EU would protect traditional players at the expense of genuine monetary competition. Some highlight the contrast with other regions of the world more inclined to let private stablecoins play a central role in global payments.
As Arthur Breitman, founder of Tezos, put it, these limits mainly reflect the European system’s structural dependence on commercial banks to create credit.
A Delicate Balance to Strike
At its core, the debate reveals the central tension of CBDCs: providing a safe and modern public digital currency without destabilizing the existing financial system. For the ECB and the member states, the limits are an essential safeguard. For their detractors, they risk turning the digital Euro into a secondary and limited tool.
The European compromise is clear: ‘innovate’, yes. Destabilize the banking system, no. The question remains whether this balance will be enough to make the digital Euro attractive compared to widely used private solutions.
