The European Central Bank (ECB), having studied the public reaction to the news about plans to issue a digital euro, announced the need to limit access to CBDC to protect the financial system.
The European regulator released a report saying that, according to economic data, the access of Europeans to state digital currencies should be limited in order to prevent significant capital flight from traditional banks. A team of economists led by ECB CEO Frank Smets, after examining the impact of different types of digital euros on lending, found that the optimal number of digital euros in circulation should be between 15% and 45% of quarterly real gross domestic product (GDP).
As the Eurozone’s quarterly GDP is around €3 trillion, the previously put forward proposal for a cap of €3,000 is roughly in the middle of this range at 34%. In their research, the experts partly based on how previous public statements about the design of the Central Bank’s digital currency affected bank stocks.
The authors of the report warn that if the state digital currency is not limited, it may become too popular:
“With no cap on quantity and no reward, the amount of CBDC in circulation would be roughly equal to 65% of quarterly real GDP. This will have a sustained negative impact on investor interest in bank securities.”
The authors of the report warn that many countries have no experience in using digital currencies of the Central Bank. And, therefore, there is no available data on which to conduct an empirical analysis.
Earlier, Fabio Panetta said that central bank digital currency accounts would be capped at €3,000 per person to ensure there is enough fiat money to support lending.
