ECB gains backing from Council of EU for caps on digital euro holdings

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• The Council of the European Union supports the European Central Bank's plan for a digital euro, viewing it as an evolution of money and a tool for financial inclusion.
• Limits on digital euro holdings are proposed to prevent the central bank digital currency from competing with bank deposits and to avoid financial instability.
• Critics argue that these limits protect banks from competition and may restrict the digital euro's potential usefulness.

The Council of the European Union, an EU body that amends legislation and commits national governments to adopting the bloc's laws, said it backs the European Central Bank’s plan to explore an official digital currency, calling it an evolution of money and a tool for financial inclusion.

In a Friday post on its website, the Council, however, said the ECB will need to set limits on the total value that can be held in online accounts and digital wallets at any one time to “avoid the digital euro being used as a store of value” to prevent it from having any impact on financial stability.

The Council comprises government ministers from the 27 nations in the bloc and shapes EU law with the European Parliament. Its endorsement signals broad national alignment around the central bank digital currency' design, increasing the likelihood that forthcoming legislation will reflect the ECB’s approach.

“The holding limits are not just about abstract financial stability,” Edwin Mata, co-founder and CEO of tokenization platform Bricken, told CoinDesk. “They are about preventing the digital euro from competing directly with bank deposits. If people could hold unlimited digital euros, deposits could shift instantly from commercial banks to the ECB, especially during periods of stress, effectively accelerating bank runs.”

The ECB has warned about similar risks posed by stablecoins. Its officials have pointed to dollar-pegged assets, such as Tether’s USDT and Circle Internet’s (CRCL) USDC, cautioning that “significant growth in stablecoins could cause retail deposit outflows, diminishing an important source of funding for banks and leaving them with more volatile funding overall.”

Making sense of digital euro saving caps

The ECB’s concern goes beyond vague “financial stability, " Pedro Birman, CEO of Quadra Trade, said.

“In the euro system, most money is created by commercial banks through lending,” he said in an interview. “If digital euros could be freely held as a store of value, large-scale migration from bank deposits into self-custodied ECB money would shrink banks’ deposit bases. That would directly constrain credit creation, raise funding costs for banks, and act as an unintended monetary tightening, especially in stress periods.”

That concern is echoed by others who see the caps as a necessary design tool to protect the balance of the financial system.

“The message is clear: the digital euro is being designed as a payments rail, not a balance sheet, and the ceilings are there to make sure it never becomes one,” said Amber Ghaddar, founder and managing director at The 200Bn Club and Nexera.

According to Ghaddar, large digital-euro balances would also risk weakening monetary-policy transmission, potentially forcing the ECB into difficult decisions, such as whether to pay interest on retail central-bank money or accept reduced control over interest rates.

Protecting banks from competition

Still, others remain skeptical. While the ECB frames its policy around financial stability, the effect is also to shield banks from new forms of competition, said Jonatan Randin, senior market analyst at PrimeXBT.

He pointed to ECB analysis published in February 2024 that said holding limits are designed to preserve the economic function of commercial banks and protect the corporate deposit base. A Copenhagen Economics study estimated such a move could cut banks’ net interest income by 7% on average, rising to 13% for smaller lenders.

“Banks profit from holding customer deposits and lending that money out,” Randin said. “A digital euro without strict limits would give citizens a risk-free alternative, reducing banks’ access to cheap funding.”

Arthur Breitman, founder of the Tezos blockchain, made a similar point. He said the measure is intended to prevent sudden deposit flight from commercial banks into what would effectively be riskless central-bank money. While that protects banks’ funding models, he added, it also reflects how dependent the current system is on commercial banks to extend credit.

Charles d’Haussy, CEO of the dYdX Foundation, pointed to the contrast in global approaches. “Europe is heavily committed to a sovereign digital CBDC, which is the digital euro, to maintain monetary control and privacy in a fully regulated framework,” he said. “Much of the rest of the world, especially the U.S. and dollar-centric regions, favors private stablecoins for their speed, innovation, and global scale.”

At its core, the debate reflects a tension at the heart of central bank digital currency design: how to offer the public a trusted, modern payment tool without undermining the financial system that already exists. The ECB and EU policymakers see holding limits as a necessary guardrail to maintain that balance. Critics, meanwhile, warn that those same limits may cap the digital euro’s usefulness, and protect incumbents from meaningful competition.

Read more: ECB’s Christine Lagarde shifts focus to digital euro rollout after holding rates

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