ECB gains backing from Council of EU for caps on digital euro holdings

Group 1 - The Council of the European Union supports the European Central Bank's (ECB) initiative to explore an official digital currency, viewing it as an evolution of money and a means for financial inclusion [1][3] - The ECB is advised to impose limits on the total value held in online accounts and digital wallets to prevent the digital euro from being used as a store of value, which could threaten financial stability [2][4] - The endorsement from the Council indicates a strong alignment among EU member states regarding the design of the central bank digital currency, increasing the likelihood of legislation reflecting the ECB's approach [3] Group 2 - Concerns have been raised that allowing unlimited holdings of digital euros could lead to a significant shift of deposits from commercial banks to the ECB, particularly during financial stress, potentially accelerating bank runs [4][6] - The ECB's worries extend beyond general financial stability, as unrestricted digital euro holdings could reduce banks' deposit bases, constrain credit creation, and inadvertently tighten monetary conditions [5][6] - The design of the digital euro is intended to function primarily as a payment system rather than a store of value, with limits in place to ensure it does not compete with traditional bank deposits [7]