The European Central Bank wants its digital euro to become successful, "but not too successful," according to Fabio Panetta, an ECB executive board member.
"If it were too successful, we could trigger instability," he said, adding that limitations on the ownership of digital euros would be "essential" in order to preserve financial stability. Panetta was speaking at a virtual conference organized by the European Banking Federation.
Panetta's comments come as governments around the world, from Cambodia to China and the Bahamas, are actively exploring central bank digital currencies, which are a virtual representation of a country's fiat currency. About 60% of central banks are now conducting experiments or proofs of concept, while 14% are moving forward to development and pilot arrangements, according to the Bank for International Settlements.
But commercial banks have raised concern over where this will leave them, warning that central bank-issued digital currencies could erode their deposit bases and increase the risk of bank runs.
Panetta acknowledged this risk, saying: "It is well possible, especially in crisis times, that depositors — suppose they have concerns about the strength of their bank — decide to shift abruptly from their bank account to a digital euro." This could trigger instability, he said.
It will be necessary to limit the amount each individual user can hold in digital euros, he said, either through a simple cap, or by introducing a tiered remuneration, in which the user would be rewarded for holding digital euros below a set limit and penalized for anything above that.
"We have been discussing amounts in the order of €2,000, €3,000 — not more than that. In that way, you can use a digital euro as a means of payment, but not as a form of investment," Panetta said.
The ECB is due to decide in July whether to start a formal investigation phase on the digital euro, having finalized a public consultation in April.
The digital euro would be "like cash," but stored in a digital format, said Panetta. This allows the ECB to continue to provide citizens with a "100% riskless" means of payment as people are moving away from using cash.
He emphasized that the ECB does "not want to crowd out banks" and that it does not have the expertise to deal with end users, nor does it have the resources.
Instead, the digital euro would work as a kind of "raw material," around which supervised intermediaries such as banks could build efficient business models, Panetta said.
"We would develop a digital euro, but then the ecosystem would be shaped by the activity of banks and other payment intermediaries, who are naturally more innovative, who are naturally more inclined and capable of providing services to their customers," he said. "It is not our job."
A formal investigation phase would take around two years. It would see the ECB analyze possible design options and user requirements as well as the conditions under which financial intermediaries could provide front-end services built on a digital euro.