Experts Divided on Central Bank Digital Currency
During a hearing on the potential issuance of a digital euro, experts provided testimony that did little to settle the legislative debate surrounding central bank digital currencies (CBDCs) in Europe.
Members of the European Parliament invited four expert witnesses to discuss the pros and cons of CBDCs while lawmakers reviewed legislative proposals. However, there was no consensus among the experts on key questions, such as individual holding limits and the necessity of a digital euro.
Italian economist Ignazio Angeloni stated that the arguments presented during the hearing would not support the issuance of a CBDC, as there is currently no evidence of malfunctioning in the existing system. Angeloni previously published a research paper highlighting concerns about the implications of a digital euro.
No Clear Market Niche for Digital Euro
The research paper argued that there is no clear market niche for a digital euro in today’s competitive retail payment landscape. It also raised concerns about the potential adverse incentive structure between retail banks and the digital euro, which could lead to a run on traditional bank deposits.
The central bank has proposed a holding limit for digital euros per person, but Angeloni suggested this limit may be insufficient. On the other hand, Vicky Van Eyck, executive director of Positive Money Europe, expressed optimism about implementing a temporary holding limit that can be gradually lifted through stress tests and research.
Potential Impact on Retail Banking
Marieke Van Berkel, head of retail banking at the European Association of Cooperative Banks (EACB), warned that if bank deposits contract due to a CBDC, big banks would likely be the first to suffer. The more customers a bank has, the bigger the problem becomes. Initially, banks proposed a holding limit as small as 60 euros.
CBDC as a Safer Alternative
Miguel Fernández Ordóñez, a governor for the Bank of Spain, was the most optimistic among the experts on CBDCs. He highlighted the digital euro as a safer alternative to bank deposits and private cryptocurrencies. A contraction in deposits caused by a CBDC might also help deregulate the banking sector by eliminating the need for prudential measures like deposit insurance.
European Central Bank chief Christine Lagarde recently shared that her son suffered significant losses from speculating in the private crypto market last year.
Hot Take: Uncertain Future for Digital Euro
The hearing on the potential issuance of a digital euro has revealed conflicting opinions among experts regarding central bank digital currencies (CBDCs). While some experts argue against issuing a CBDC due to the lack of evidence of malfunctioning in the current system, others see potential benefits in terms of safety and regulation. The debate also raises concerns about the impact on retail banking and the need for holding limits. As Europe continues to evaluate legislative proposals on CBDCs, it remains uncertain whether a digital euro will become a reality or if other alternatives will be explored.
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