ECB gains backing from Council of EU for holding limits on digital euro

ECB gains backing from Council of EU for caps on digital euro holdings Concerned that a CBDC will drain funds from traditional banks, regulators are considering caps on how much digital euro citizens can hold to ensure it's purely for payments. What to know: The Council of the European Union supports the European Central Bank's plan for a digital euro, viewing it as an evolution of money and a tool for financial inclusion. Limits on digital euro holdings are proposed to prevent the central bank digital currency from competing with bank deposits and to avoid financial instability. Critics argue that these limits protect banks from competition and may restrict the digital euro's potential usefulness. The Council of the European Union , an EU body that amends legislation and commits national governments to adopting the bloc's laws, said it backs the European Central Bank’s plan to explore an official digital currency, calling it an evolution of money and a tool for financial inclusion. The EU seeks to put savings caps on the digital euro. In a Friday post on its website, the Council, however, said the ECB will need to set limits on the total value that can be held in online accounts and digital wallets at any one time to “ avoid the digital euro being used as a store of value ” to prevent it from having any impact on financial stability. The Council comprises government ministers from the 27 nations in the bloc and shapes EU law with the European Parliament. Its endorsement signals broad national alignment around the central bank digital currency' design, increasing the likelihood that forthcoming legislation will reflect the ECB’s approach. “The holding limits are not just about abstract financial stability,” Edwin Mata, co-founder and CEO of tokenization platform Bricken, told CoinDesk. “They are about preventing the digital euro from competing directly with bank deposits. If people could hold unlimited digital euros, deposits could shift instantly from commercial banks to the ECB, especially during periods of stress, effectively accelerating bank runs.” The ECB has warned about similar risks posed by stablecoins. Its officials have pointed to dollar-pegged assets , such as Tether’s USDT and Circle Internet’s (CRCL) USDC, cautioning that “significant growth in stablecoins could cause retail deposit outflows, diminishing an important source of funding for banks and leaving them with more volatile funding overall.” Making sense of digital euro saving caps The ECB’s concern goes beyond vague “financial stability, " Pedro Birman, CEO of Quadra Trade, said. “In the euro system, most money is created by commercial banks through lending,” he said in an interview. “If digital euros could be freely held as a store of value, large-scale migration from bank deposits into self-custodied ECB money would shrink banks’ deposit bases. That would directly constrain credit creation, raise funding costs for banks, and act as an unintended monetary tightening, especially in stress periods.” That concern is echoed by others who see the caps as a necessary design tool to protect the balance of...

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