Spanish Official Suggests Tools to Mitigate Digital Euro’s Unintended Consequences

Before making a final decision on the potential launch of a digital euro, the European Central Bank (ECB) must assess the impact of a digital euro on the euro zone’s banking system.

So said Spain’s deputy central bank governor, Margarita Delgado, in a speech in which she emphasized the importance of measuring this impact to ensure the stability, competitiveness and profitability of the financial system, Reuters reported Friday (Aug. 25).

The ECB is currently evaluating the potential launch of a digital euro, a move aimed at addressing the shortage of European payment service providers, and is scheduled to make a decision in October, according to the report.

Delgado said the issuance of a digital euro should not compromise the stability of the financial system, per the report. She acknowledged the robustness of the euro zone’s banking sector but stressed the importance of considering elements that might affect the competitiveness and profitability of banks.

Delgado, who also serves on the ECB’s supervisory board, also highlighted the significance of evaluating the overall impact of a digital euro on banks’ liquidity, the report said. The transfer of money from traditional banking accounts to digital euro wallets could potentially affect liquidity levels within the banking system.

To ensure financial stability, Delgado suggested implementing various tools to mitigate any unintended consequences that may arise from the introduction of a digital euro, according to the report. One such measure could be setting a limit on the amount of digital euros that users may hold, with Delgado mentioning a potential limit of around 3,000 euros (about $3,200).

Delgado also highlighted the advantages of a digital euro, stating that it would provide a payment solution based on European infrastructure, accepted throughout the entire euro area, the report said.

Earlier this year, ECB President Christine Lagarde said that a retail digital euro could offer Europeans more resiliency and autonomy, as many citizens now rely on payment apps and cards that are not European.

It was reported in June that the European Commission said that the benefits of a digital euro are greater than the risks, and that the price of not issuing a Europe-wide central bank digital currency could be significant.