ECB: DIGITAL EURO RESERVED FOR PAYMENTS, NOT INVESTMENT

The European Central Bank (ECB) has unveiled a paper and video promoting its digital Euro while seeking to address concerns regarding investments in the Central Bank Digital Currency (CBDC), which it intends to limit.

According to Ulrich Bindseil, Jürgen Schaaf, and Executive Board member Piero Cipollone, the digital Euro CBDC will primarily serve as a payment instrument and not as an investment vehicle. They emphasized that banks’ worries about customers withdrawing deposits to hold digital Euros are unfounded.

The ECB aims to develop a digital Euro CBDC as a legal tender for digital payments across Europe. However, there are concerns about potential deposit outflows from retail banks to the central bank, which oversees the CBDC.

To maintain the role of commercial banks, individual holdings of the digital Euro would be restricted. Additionally, the CBDC would not accrue interest or hold corporate assets. A “reverse waterfall” mechanism would link digital Euro accounts to bank accounts, covering any shortfalls from the latter, discouraging large digital Euro balances.

The ECB’s design of the digital Euro aims to mitigate risks of disintermediation and significant outflows from bank deposits by imposing limits, offering no interest, and implementing the “reverse waterfall” mechanism to deter investment purposes.

The ECB also cautioned against stablecoins and “e-money,” noting their potential impact on banks’ role in the economy, as non-bank entities may not prioritize limiting their services. Consequently, the ECB emphasized that the digital Euro is not intended as a store of value.

Moreover, the ECB’s video on the digital Euro highlights safeguards for financial stability, including limits on digital Euro holdings. However, it does not mention the potential surveillance of transactions and their linkage to digital identities.

In extreme scenarios, the central bank could wield more control over spending based on factors like carbon usage, although such legislation is speculative.

Recent reports suggest that major European banks, including the ECB, are actively opposing Bitcoin due to its perceived threat to CBDCs. Additionally, European banks have been accused of spreading fear, uncertainty, and doubt (FUD) to deter public interest in cryptocurrencies.

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