Europe Central Bank Proposes ‘Unattractive’ Rates for Digital Currency

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. 

central bank digital currencies (CBDCs)

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.

Europe Central Bank Proposes ‘Unattractive’ Rates for Digital Currency
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