The Council of the European Union, an EU body that modifies legislation and commits national governments to adopt 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.
However, in a Friday post on its website, the Council said the ECB will need to set limits on the total value that can be held in online accounts and digital wallets at any time to “prevent the digital euro from being used as a store of value” to prevent it from having any impact on financial stability.
The Council is made up of government ministers from the bloc’s 27 countries and drafts EU legislation with the European Parliament. Their support indicates broad national alignment around the design of the central bank’s digital currency, increasing the likelihood that upcoming legislation will reflect the ECB’s approach.
“Holding limits are not just about abstract financial stability,” Edwin Mata, co-founder and CEO of tokenization platform Bricken, told CoinDesk. “This is about preventing the digital euro from competing directly with bank deposits. If people could hold unlimited digital euros, deposits could instantly move from commercial banks to the ECB, especially during periods of stress, effectively accelerating bank runs.”
The ECB has warned of similar risks posed by stablecoins. Its officials have pointed to dollar-pegged assets such as Tether’s USDT and Circle Internet’s (CRCL) USDC, warning that “significant growth in stablecoins could trigger retail deposit outflows, diminishing an important source of funding for banks and leaving them with more volatile funding overall.”
Understand the savings limits in digital euros
The ECB’s concern goes beyond vague “financial stability,” said Pedro Birman, chief executive of Quadra Trade.
“In the euro system, most money is created by commercial banks through loans,” he said in an interview. “If digital euros could be held freely as a store of value, the large-scale migration of bank deposits to the ECB’s self-custodied money would reduce banks’ deposit bases. That would directly limit credit creation, increase funding costs for banks and act as an involuntary monetary tightening, especially in periods of stress.”
That concern is shared by others who see limits as a necessary design tool to protect the balance of the financial system.
“The message is clear: the digital euro is being designed as a payment gateway, not a balance sheet, and the limits are there to ensure it never becomes one,” said Amber Ghaddar, founder and CEO of The 200Bn Club and Nexera.
According to Ghaddar, large balances in digital euros would also risk weakening the transmission of monetary policy, which could force the ECB to make difficult decisions, such as paying interest on the central bank’s retail money or accepting reduced control over interest rates.
Protect banks from competition
Still, others remain skeptical. While the ECB frames its policy around financial stability, the effect is also to protect banks from new forms of competition, said Jonatan Randin, senior market analyst at PrimeXBT.
He pointed to ECB analysis published in February 2024 that such holding limits are designed to preserve the economic function of commercial banks and protect the corporate deposit base. A study by Copenhagen Economics estimated that such a move could reduce banks’ net interest income by 7% on average, rising to 13% for smaller lenders.
“Banks benefit from holding customers’ deposits and lending that money,” Randin said. “A digital euro without strict limits would offer citizens a risk-free alternative, reducing banks’ access to cheap financing.”
Arthur Breitman, founder of the Tezos blockchain, made a similar observation. He said the move is aimed at preventing the sudden flight of deposits from commercial banks into what would effectively be risk-free central bank money. While that protects banks’ funding models, he added, it also reflects how dependent the current system is on commercial banks to provide credit.
Charles d’Haussy, CEO of the dYdX Foundation, highlighted the contrast between global approaches. “Europe is strongly committed to a sovereign digital CBDC, which is the digital euro, to maintain monetary control and privacy in a fully regulated framework,” he said. “Much of the rest of the world, especially the US and dollar-centric regions, favor private stablecoins for their speed, innovation and global scale.”
At its core, the debate reflects a tension at the heart of central bank digital currency design: how to offer the public a modern and reliable payment tool without undermining the financial system that already exists. The ECB and EU authorities consider maintaining limits to be a necessary barrier to maintaining that balance. Meanwhile, critics warn that those same limits could limit the usefulness of the digital euro and protect holders from significant competition.
Read more: ECB’s Christine Lagarde shifts focus to digital euro launch after holding rates
