The discussion about the digital euro reaches a new boiling point in Europe. On the one hand, the EU is taking great steps towards the introduction. At the same time, the worries are increasing on the possible negative consequences for the existing financial system, such as mass ‘bank runs’.
EU ministers reach an agreement on limits
During a meeting in Copenhagen, European Finance Ministers reached agreement last week on the introduction of limits on maintaining the digital euro. According to the provisional agreement, citizens will soon not be allowed to have these ‘e-Euro’s’ unlimited. The European Central Bank (ECB) proposes an upper limit of 3,000 euros to limit risks for commercial banks.
Yet the exact interpretation of those limits is still open. It has been agreed that individual Member States will receive a say in determining the final height. The agreement seems to be primarily intended to reassure markets, because the disagreements remain large under the skin.
Digital euro as a political fault line
In Brussels, the digital euro is presented as a strategic project to achieve European independence. Yet there is also strong criticism within the EU. The Spanish MEP Fernando Navarrete, for example, warns against destabilization of the financial system and infringement of privacy.
According to Navarrete, it is unclear how the ECB wants to anonymize digital payments and whether banks do not massively lose customers to the digital currency. The politician therefore warns of ‘digital bank runs’. With that he refers to a sudden shift from savings from commercial banks to digital euros. This can put pressure on the liquidity of banks and, in the worst case, lead to bankruptcies.
Strategic race with China and the US
The question is whether Europe still has the choice not to participate in this digital revolution. The rise of dollar-based Stablecoins forces the EU to develop its own alternative. The ECB wants to take steps in the coming years: in 2026 the legislation on the digital euro must be ready, with a possible launch in 2029.
In the meantime, China is taking steps towards monetary independence with the development of Yuan-StableCoins. That means a drastic change of course compared to the earlier ban on crypto currency in 2021.
Russia is also working on a digital rubles and is considering the creation of a National Cryptobank. This also includes a shadow side of this technology. A digital currency enables governments to fully follow and control transactions. In the case of Russia, Putin could thus get unprecedented grip on the financial behavior of citizens and companies, a powerful instrument for oppression.
Source: https://newsbit.nl/digitale-euro-verdeelt-europa-bankruns-of-strategische-noodzaak/
