EU Plans to Have ECB Set Limits on Use of Digital Euro

EU Plans to Have ECB Set Limits on Use of Digital Euro

The European Union explores the implementation of a digital euro amidst discussions on financial stability and market impact. It became the first group of institutions to draft and pass legislation with a thumping majority for digital assets.

In recent developments, the European Union’s executive branch is planning to unveil plans for a digital euro that would require the European Central Bank to set limits on its use, according to reports. The ECB would have to decide on the instruments needed to ensure financial stability, according to a draft European Commission proposal on setting up a digital euro.

The draft proposal highlighted that to ensure the stability of the financial system, the availability of credit and the transmission of monetary policy, the use of the digital euro as a store of value may be subject to limits.

The draft proposal suggests that limits may be imposed on the use of the digital euro as a store of value, to safeguard these crucial aspects. These limits would serve to strike a balance between promoting financial innovation and mitigating potential risks associated with the widespread adoption of a central bank digital currency.

The European Union finance ministers are scheduled to convene in Luxembourg to discuss the digital euro project. This meeting marks a significant step forward in the exploration and potential implementation of a digital euro within the European Union.

The investigation phase for the digital euro started in October 2021 and is expected to take around two years, concluding in October 2023. ECB looked at how a digital euro could be designed and distributed, as well as the impact it could have on the market. Then, there will be a discussion on whether to start the process of actually developing it.

This phase is expected to conclude in October of the current year. Throughout this period, extensive research and analysis have been conducted to assess the design, distribution, and market impact of a digital euro. The outcome of these investigations will determine whether the ECB proceeds with the actual development of a central bank digital currency.

As coined by the ECB, a digital euro would offer an electronic means of payment that anyone could use in the euro area. It would be secure and user-friendly like cash is today. As central bank money issued by the ECB, it would be different from “private money”, but you could also use a card or a phone app to pay with digital euros.

Amid the widespread use of digital and mobile technologies, retail payments are also undergoing a
disruptive transformation. As people increasingly shift towards digital payments, it is imperative to ensure that they continue to have access to central bank money, the fundamental underpinning of our currency, the euro. This is also key to strengthening the strategic autonomy of the euro area and is important for the efficiency of payments.

It is important to note that ECB also highlights the objectives of digital Euros, it aims at preserving the role of public money as the monetary anchor for the payment system. Also, This robust and efficient hybrid model for payments is put to the test by the widespread adoption of digital payments. Further, a digital euro would be a public good and foster innovation.

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