A recent European Parliament report analyzing the digital euro’s legal basis has argued against the European Central Bank’s (ECB) suggested tight holding limits, remuneration schemes, and limited privacy features. The first rollout date, currently set for 2027, might be too ambitious to implement all the desirable legislation.
Update: the draft enabling law has been released.
A topical point raised in the paper is the role of banks and payment providers. Legal tender legislation might require merchants and payment firms to accept CBDC but won’t force banks to act as intermediaries as the ECB is planning. However, the paper doesn’t delve into the challenge of refusing a central bank who is also your regulator.
Two key design decisions for the digital euro are holding limits that could be around €3,000 and the possibility of paying interest. Holding limits should prevent mass migration to CBDC from bank deposits. But it moves the digital euro away from the concept of it being digital cash because physical cash has no such restrictions. As we’ll see, classing it as digital cash has some legal ramifications.
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