In November 2021, Denis Beau, Deputy Governor of the Bank of France, participated in a colloquium on the challenges of financial regulation organized by the IEA Paris business school at the Sorbonne University. In his intervention, Beau spoke about the challenges related to the digital euro, indicating some problems that this currency could generate in the banking system.
One of their concerns was the possibility that there could be an increase in conversions of bank deposits into digital currencies. This, according to Beau, would affect the profitability of banks and their ability to finance the economy. As a solution, he proposed limiting the amount of MNBC (in Spanish, Central Bank Digital Currencies) accumulative by citizens.
Along the same lines indicated by Beau, the European Central Bank and the Bank of England have recently announced that, in their respective plans to develop their own virtual currencies, they contemplate a maximum amount of digital euros and pounds that can be accumulated by users.
Maximum amount of digital euros. On January 24, Fabio Panetta, member of the Executive Committee of the European Central Bank, was interviewed by the German newspaper Handelsblatt. In the interview, the Italian economist announced that there will be a maximum amount of digital euros accumulative by citizens when the virtual currency is implemented.
Form of payment, not investment. Panetta thus responded to the question about the possibility that, in the event of an economic crisis, users can convert deposits into digital euros, thus aggravating the economic situation. With this limit, the European Central Bank seeks to prevent the digital euro from generating risks to financial stability. In addition, it is a way of making it clear that the intention of the organization is that the virtual European currency is a complementary form of payment with cash, not an investment.
Limit in 3,000 euros? While the Italian economist acknowledged that the ECB has not set any concrete maximum amount, he did mention a figure. He did so when talking about the possibilities of using the digital euro at a global level: “(…) But even if we limit the accumulation to 3,000 euros per person, that could generate financial tensions in the domestic financial systems of some countries outside the euro zone ”.
Panetta repite digit. In this sense, it should be noted that Panetta already mentioned that amount in a speech delivered in Brussels in June 2022 about the digital euro and the evolution of the financial system. Therefore, there are reasons to think that this may finally be the limit set by the ECB.
The United Kingdom follows the same path. For its part, the Bank of England announced on February 7 that it was in consultation with the British Treasury about a possible creation of the digital pound, which could be used in daily payments for households and businesses, both for physical as well as online. It would work as a complementary payment method to cash.
Same fear, same solution. In addition, users’ bank deposits could be exchangeable for virtual pounds. In this sense, to avoid risks “such as the rapid conversion of bank deposits into digital pounds”, during the first phase a maximum number of digital currencies collected by each person would be established. The Bank of England also added that this measure could be modified in the future.
Between 10,000 and 20,000 pounds. Unlike the European Central Bank, the Bank of England has been more specific about the maximum amount of digital pounds that could be accumulated. “We are proposing a cap between £10,000 and £20,000 per individual as a balance between risk management and broad support for the use of the digital pound,” said Jon Cunliffe, deputy governor of the Bank of England, in a speech on 7 April. February.
Central Banks 2.0. The future goes through digital currencies. In Europe, pilot tests are already being carried out to test the digital euro and in the United States a test began in November 2022 to test the digital dollar.
Even so, at the moment only the central banks of a handful of countries, among which are the Bahamas or Nigeria, issue digital currencies. In a few years it seems that there will be more.
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