EU Backs Digital Euro With Holding Limits to Protect Financial Stability

The Council of the European Union has formally backed the European Central Bank’s (ECB) plan to explore a digital euro, framing it as a natural evolution of money and a tool to support financial inclusion across the bloc. The endorsement signals strong political alignment among the EU’s 27 member states and increases the likelihood that upcoming legislation will closely follow the ECB’s design principles for a central bank digital currency (CBDC).

In a statement published Friday, the Council emphasized that while it supports the digital euro initiative, strict limits must be placed on how much individuals can hold in digital euro wallets or online accounts. These caps are intended to prevent the digital euro from becoming a store of value and to ensure it does not disrupt financial stability. Policymakers fear that unlimited holdings could trigger large-scale shifts of deposits from commercial banks to the ECB, particularly during periods of economic stress, potentially accelerating bank runs.

ECB officials have raised similar concerns about the growth of stablecoins such as Tether’s USDT and Circle’s USDC, warning that significant adoption could drain retail deposits from banks and weaken their funding base. Industry leaders echo these risks, noting that in the eurozone, commercial banks play a central role in money creation through lending. A mass migration to risk-free central bank money could shrink bank deposits, constrain credit creation, and unintentionally tighten monetary conditions.

Supporters of holding limits argue that the digital euro is designed primarily as a payment instrument, not a savings vehicle. They caution that large digital euro balances could also complicate monetary policy transmission and force difficult decisions around interest rates on retail central bank money.

Critics, however, say the policy effectively shields banks from competition. Studies cited by analysts suggest that without holding caps, banks could see meaningful declines in net interest income as consumers move funds into digital euro accounts. While this protects the existing banking model, skeptics argue it may limit the digital euro’s usefulness and slow innovation compared to private stablecoins, particularly in regions like the United States.

Overall, the debate highlights a core challenge in CBDC design: balancing innovation and public trust with financial stability and the role of commercial banks.