Fiery Public Hearing on Digital Euro Sees Experts Diverge on Key Issues

Expert witnesses answered lawmaker questions on holding limits, impact on banking systems and privacy for an EU central bank digital currency.

AccessTimeIconNov 28, 2023 at 6:46 p.m. UTC
Updated Mar 8, 2024 at 5:42 p.m. UTC
  • European Union lawmakers questioned four expert witnesses on the implications of a potential digital euro as they consider legislative proposals.
  • Lawmakers have opposed European Central Bank plans for a digital euro.
  • Experts answered questions on holding limits, closeness to cash and privacy concerns of a central bank digital currency but seemingly diverged on key issues.

A digital euro is complicated, as evidenced by a two-hour public hearing hosted by members of the European Parliament on Tuesday.

The EU’s plans for a retail central bank digital currency (CBDC) from earlier this year faced opposition from lawmakers who questioned the need to have one in a jurisdiction where payments are pretty efficient, whether citizens’ privacy will be preserved, and – more controversially – whether it could be used to expand state control.

The hearing was meant to help lawmakers understand the subject better as they consider legislative proposals. But the invited experts diverged on practically every issue – from whether cash is on the decline to individual holding limits for a digital euro.

“The arguments on balance today would not favor such [a decision to issue a CBDC] in my view,” said Italian economist Ignazio Angeloni, who wrote a paper for the Parliament this year titled “Digital Euro: When in doubt, abstain (but be prepared).”

“An invasive form of public intervention like this one would be justified only if clear evidence were to emerge of malfunctioning in the present system. But this is not in sight at the moment,” he added.

Angeloni was immediately countered by former Bank of Spain Governor Miguel Fernández Ordóñez, who not only praised a potential digital euro as a safer asset than bank deposits but went on to say a CBDC could help deregulate the banking sector because a lack of deposits would negate the need for deposit insurance and prudential measures.

Holding limits

Vicky Van Eyck, executive director of Positive Money Europe, assured lawmakers the destruction of banks was not the goal.

She advocated for gradually removing the proposed 3,000 euro CBDC holding limit in legislative plans to curb the mass abandoning of deposits.

"We don't think that we can jump from bank deposits to suddenly central bank digital currency with no limits. We have no interest in seeing the banking system crash,” said Van Eyck. “But we do think that a temporary holding limit that is gradually lifted through stress tests and research is the correct way to go.”

The movement of funds from commercial banks to the central bank would put the banks in danger and put the financial system in peril, Angeloni said, adding that a digital euro bringing more safety to financial systems is “an illusion.”

He added that a CBDC would have a “contractionary effect” on bank deposits, but how much will depend on the holding limit.

Bigger banks would suffer more from mass exodus because they’ll have to bear more outflows, said Marieke Van Berkel, head of retail banking, payments and digitalization at the European Association of Cooperative Banks (EACB).

“The more customers you have, the bigger the problem becomes, which is also the case of cooperative banks,” Van Berkel said.

Van Eyck noted that although the EU proposed a 3,000 euro limit on individual CBDC holdings, banks initially pushed for a 60 euro ($66) limit.

Privacy, crypto and the death of cash

One of the biggest questions the ECB has faced is whether a digital euro would replace cash. The central bank has tried all sorts of campaigns to dispel those concerns, including with a Kahoots! Quiz.

Naturally, much of Tuesday’s hearing was spent discussing whether cash is doomed – something Ordóñez affirmed but Angeloni called a “myth.”

“What we're seeing is this gradual decline of the physical euro and people shifting to risky, private digital currency, and that's one more reason why … it's useful to have a public currency,” Ordóñez said.

Angeloni said countries like Norway and Sweden – where cash use is low – are exceptions to the rule.

“It's true that U.S. networks like MasterCard and Visa have high market shares in Europe, but their dominance is far from established in Germany and in Italy, for example,” he said.

But a digital euro similar to cash – particularly one used for offline payments – could enhance users’ privacy, according to Van Eyck.

“The offline version of the digital euro is crucial as it is most able to mimic the anonymous nature of cash today. The design and choice of technology for the offline version need to be carefully chosen…” she said.

As for crypto, they’re no threat to traditional payments, according to Angeloni.

“Crypto and stablecoins are very different assets. They're not used and they will not be used in the foreseeable future for payments. That's impossible. They are too volatile. They are too costly... So there is no danger, in my view, that crypto-assets may compete with payments,” he said.

Edited by Nikhilesh De.


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Sandali Handagama

Sandali Handagama is CoinDesk's deputy managing editor for policy and regulations, EMEA. She does not own any crypto.