European Central Bank publishes technical analysis indicating digital euro holding limits up to EUR 3,000 would have contained financial stability effects

The European Central Bank (ECB) published technical data for the European Parliament’s co-legislators on how different digital euro holding limits, up to EUR 3,000 per individual, could affect financial stability. The work quantifies potential impacts on bank deposits, liquidity metrics, profitability and lending dynamics, and is presented as a technical response to a specific request rather than an output of the ECB’s full holding-limit calibration methodology or a view on the appropriate limit. In a business-as-usual scenario where the digital euro is used mainly for day-to-day payments, estimated impacts on bank deposits are contained across all assessed limits, and when factoring in the payment digitalisation trend and declining transactional use of cash the ECB finds no aggregate bank deposit outflows at holding limits of EUR 3,000 or less. Profitability effects are also small, with declines in net interest income estimated at around 8 to 18 basis points without the digitalisation trend and turning positive once deposit inflows linked to digitalisation are included. Under an extreme and highly unlikely flight-to-safety scenario, aggregate regulatory liquidity metrics remain well above 100%, and with a EUR 3,000 limit only nine banks representing about 0.1% of total banking sector assets would be at risk of depleting liquidity buffers below the 100% level; the implied outflows are reported as milder than assumptions used in the liquidity coverage ratio framework and in ECB Banking Supervision’s 2019 liquidity stress test scenarios. The ECB also provided additional material, including a full report and an accompanying letter from Piero Cipollone to Aurore Lalucq, Chair of the European Parliament’s ECON Committee.