The European Central Bank (ECB) remains open to the idea of a digital euro equivalent but would want to stop citizens holding too much of it. 









 

That was the conclusion of a fresh working paper
on so-called central bank digital currencies (CBDCs) by Ulrich
Bindseil, the bank’s Director General of Market Infrastructure and
Payments, on Jan. 3. 


ECB would need to “control volume” of CBDC


The paper deals with the prospect of issuing a CBDC for the European Union, and also touches on the differences between such a currency and cryptocurrency stablecoins.

Its issuance comes as China
edges closer to becoming the world’s first state to issue a CBDC. The
ECB, like other major banks, has stayed risk-off on doing likewise,
despite the potential disadvantages of not competing with Beijing.

For
Bindseil, there are both benefits and disadvantages to issuing a
European CBDC, and these should first be addressed before the EU
entertains such a possibility.

Specifically, Bindseil proposes a
two-tier interest rate system, which would offer “unattractive” rates to
holdings above a certain threshold. This, he says, would reduce the
likelihood of savers selling fiat for the CBDC in times of crisis.

The
equivalent of a run on the banks, savers could potentially move funds
out of the ECB’s jurisdiction much more easily than they could via the
banking system under such circumstances.

“The well-tested tool of
tiered remuneration seems to be a way to ensure that the volume of CBDC
will be well-controlled,” he summarized.


ECB considers “preferences of money users”


Concluding, Bindseil nonetheless stopped short of recommending CBDC for the ECB:


“It
is acknowledged that solving the issue of risks of structural and
cyclical bank disintermediation does not necessarily lead to the
conclusion that there is a sufficient universal business case for CBDC.
The merits of adopting CBDC will depend on the preferences of money
users and available payment alternatives.”

As Cointelegraph reported, China’s central bank has already been testing its CBDC with selected banks. A cryptocurrency law passed by Beijing in October entered into effect on Jan. 1. 

The notion of discouraging saving of money meanwhile is a practice Bitcoin (BTC)
proponents routinely highlight as an example of the failure of the fiat
currency system. As Saifedean Ammous notes in his popular book, “The
Bitcoin Standard,” central banks require holders of fiat to spend and
borrow, not save, in line with Keynesian economic policy. 

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