On the digital euro holding limits

• Published in: Policy File 2024
• Main Authors: Demertzis, Maria, Mejino-López, Juan
• Format: Report
• Language: English
• Subjects: Bank accounts; Banking; Central banks

One of the ongoing discussions about the establishment of a digital euro – a central bank digital currency currently being scoped by the European Central Bank 1 – is about the holding limit. This limit, which would determine the maximum value of digital euros a consumer would be allowed to have, is currently proposed to be between €3000 and €4000. The ECB also proposes to link holdings of digital euros automatically to a user’s bank account – a so-called ‘waterfall’ approach. If a user does not have enough digital euros for a payment, the amount of digital euros will be topped up directly from the linked bank account. This would ensure smooth and efficient payments, but it also sets up an apparent clash of objectives. The ECB has argued that part of the justification for establishing the digital euro is to provide a monetary anchor to an increasingly digitalised economy, like the role cash plays today. For this to apply, consumers must hold sufficient digital euros. But the ECB has also argued that the digital euro will provide a modern, widely accepted and European-based payment system. The waterfall approach and the link it establishes with a bank account reduces the need to replenish a stock of digital euros as these euros are used. Because of the convenience of automatic top-ups from a bank account, a consumer will have little incentive to hold large sums of digital euros, if any. If that is the case, why would a consumer open a digital-euro account? Consequently, the digital euro may not provide the monetary anchor it is meant to.