Flawed Design Risks Digital Euro

The Centre for Economic Policy Research (CEPR) has published a paper questioning whether the design of the digital euro could already be undermining its chances of success ¹.

The paper argues that the design appears to support an unstated objective of protecting banks and their business models, thereby risking missing out on key social benefits. The rationale for a digital euro outlined by the European Central Bank (ECB) is to preserve European strategic autonomy, reduce rent extraction by payment service providers, and serve as a robust monetary anchor when cash transactions decline.

The CEPR suggests that to avoid instability to the financial system, banking as usual must be safeguarded. To stop the digital euro being too attractive, risking disintermediation, the thinking is that holdings of digital euros must be limited and negative interest rates will be applied during periods of financial stress.