Previously the European Central Bank had floated the idea of holding limits for a potential central bank digital currency (CBDC) of around €3,000, although the specific amount was never confirmed. A newly published survey conducted by the central bank last year gives it ammunition to consider limits of between €1,000 and €10,000 for the digital euro.
The timing is important because the digital euro is currently in the two year preparation phase which ends in October, when a decision on whether to launch will be made. However, enabling legislation has not yet been passed.
If consumers transfer some of their bank deposits into the CBDC, it could impact the capacity of banks to provide loans to consumers at affordable rates. Hence, holding limits are one of the most contentious issues in the digital euro design.
With the ability for a consumer to hold up to €10,000 in their digital euro wallet, this would allow the vast majority of the public to make almost any payment they wished. On the other hand, if the limit were €500, for some larger payments or receipts they’d have to sweep money into or out of the digital wallet from a bank account. That’s inconvenient.
Given the impact on deposits, banks want a figure near €500. The European Banking Federation commissioned a report that found with a 40% take up at the €3,000 level, it would reduce bank profits by €8.8 billion a year. At €500, with a 100% take up, this would cost banks €3.8 billion.
Holding limit survey findings
The impression from the paper is that the authors consider the limit might be higher than €3,000. For starters, it states that the original proposal was €3,000 – €4,000. It also says that, “over the range between €1,000 and €10,000 have quite small and insignificant effects on the composition of liquid asset holdings.”
Looking at the detailed findings, a limit below €3,000 could also be considered, because the median allocation to the digital euro was around €500 for most limits proposed in the survey. Very few people would use 90% of any limit (heavy users), no matter the limit level. That said, more than 10% of people would be heavy users for limits up to and including €5,000, with 23% of users holding €900 or more if the limit were €1,000. That’s not insignificant.
However, the range of responses was not provided. For example, if 30% of people would use three quarters of the limit, that would have been useful to know.
For those willing to use the digital euro, on average they’d allocate 16% of their liquid assets to the CBDC. The survey counted liquid assets as cash, money in bank accounts and crypto assets.
Oddly, for the holding limit question, 63% said they’d use the digital euro, but when asked about the digital euro more generally, 69% said they were unlikely or very unlikely to use the digital euro.
Other key digital euro survey findings
We may be reading too much into it, but the survey shows the potential for an early increase in scope of the digital euro, which initially was floated as targeting retail and peer-to-peer payments. A key argument is that these sorts of payments often rely on Visa or Mastercard which are US-owned and there’s a desire to reduce dependence on them. However, a survey question included the potential usage for wage payments, which are usually performed by local banks.
One of the experiments involved showing the survey respondents a brief video about the digital euro. Those who watched were more likely to adopt the digital euro. However, some of the impact was lost after a three month follow up. (There was some disconcerting wording referring to viewers as ‘treated’ users versus ‘untreated’ for those that did not watch.)
Fifty eight percent of the video watchers were very or quite unlikely to use a digital euro compared to 69% for those that didn’t watch the video.
They also asked people what they’d do with a €10,000 windfall. For the group that hadn’t watched the video, 27% would allocate some to the digital euro. For cash and bank accounts, the figures were 55% and 82%.
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