Capping Digital Euro at $1.6 Trillion Would Avoid Negative Effects: ECB

European Central Bank (ECB) Executive Board member Fabio Panetta said that a cap of $1.6 trillion would avoid any negative effects of the digital euro. He also said that unbacked crypto assets could not serve as money.

Panetta recommended capping the digital euro central bank digital currency (CBDC) at $1.6 trillion, he said in a speech at the Committee on Economic and Monetary Affairs of the European Parliament.

Calling the digital euro “a logical step as payments become increasingly digitized,” Panetta said that there are two main reasons why the CBDC is important. The first is that the ECB wants to preserve the role of public money as “the anchor of the payments system.” The second is that it would contribute to “strategic autonomy and economic efficiency ”

He also said that making the digital euro legal tender would make it possible to pay anywhere and tells the audience of ECB members that they would play a part in that decision. Panetta wants to make the digital euro attractive to users, with privacy standards that would help financial inclusion and digital innovation.

Panetta devotes a large part of his speech to the impact that a digital euro would have on the financial system. He essentially suggests that a digital euro would allow the European financial system to thrive while protecting against other payment means and currencies in an increasingly globalized and technological world.

To protect against any negative effects on the financial system and monetary policy, Panetta suggested a cap of $1.6 trillion for the currency. For the eurozone’s population, that would be about €3,000–4,000 per capita.

ECB not shying away from crypto regulation

The ECB has picked up the pace when it comes to regulation. It has had its hand forced, with the bank admitting that crypto adoption in Europe is increasing. Panetta spoke about crypto in his speech, saying that unbacked crypto assets cannot function as money.

“Unbacked crypto-assets, for example, cannot perform the functions of money. They are neither stable nor scalable. Transactions are slow and costly. And, in some forms, they pose a danger to the environment and to other societal objectives. Stablecoins, meanwhile, are vulnerable to runs, as we have recently seen with algorithmic stablecoins,” he said.

As such, the ECB wants to clamp down on crypto assets and has made this well known. The European Union is also working on obliging crypto firms to collect data on senders and recipients.

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