Yesterday, the European Central Bank (ECB) held a seminar with representatives of citizen groups to discuss the state of the digital euro. Topics included the Commission’s recent legislative proposal for central bank digital currency (CBDC), covering legal tender status, a high degree of privacy, and holding limits, among other topics. The ECB will decide in October whether to go ahead with the development of the CBDC, which is not a launch decision.

CBDC holding limits

Questions about holding limits figured prominently during the question and answer session. Two participants asked about the criteria behind the €3,000 ($3,400) cap on euro digital holdings to understand how the central bank arrived at what many see as a restrictively low amount. However, the ECB representatives gave familiar responses on financial stability and the risk of deposit flight in the event of a crisis, adding that it could adjust the final number as we get closer to issuance.

Another person questioned why the European Commission will set limits offline and the ECB will set limits online. The offline version is more private and is considered closer to cash. The answer was that the maximum limits of physical cash payments are not established by the ECB but by the national authorities because they imply a judgment of privacy versus anti-money laundering. Therefore, a similar approach was chosen for the offline digital euro. The issue is seen more as a political question than an economic one, so the Commission was left to answer.

Commercial fees in digital euros

A question was also raised regarding the current compensation model, which will involve banks charging merchants for accepting payments. The bill requires that the fee be equal to or less than other electronic payments. The ECB argued that even cash payments carry acceptance costs, such as charges for depositing it in the bank. Additionally, this will help cover some of the costs incurred by banks, including know-your-customer and anti-money laundering (KYC/AML) checks.

financial inclusion

Finally, the topic of financial inclusion came up, with one participant asking how the ECB would ensure that private intermediaries guarantee universal access to the digital euro. After all, a 2014 directive established the right to a basic payment account regardless of a person’s place of residence or financial situation, but many customers are still denied access because banks don’t see them as profitable.

In this sense, the legislative proposal includes the obligation of all credit institutions to provide their customers with digital euros on sight. However, that only covers existing bank customers. It also requires Member States to designate dedicated entities to enable access to the CBDC for the unbanked. These entities would perform the necessary KYC/AML background checks to ensure compliance with regulatory requirements. Our opinion is that in many countries this entity is likely to be the post office.