EU Backs Digital Euro With a Catch: Holding Caps to Shield Banks From a Run

The European Union has thrown its weight behind the 's plan for a digital euro, but with a critical caveat: strict limits on how much citizens can hold. The move signals a broad political consensus that the central bank digital currency (CBDC) must be designed as a payment tool, not a store of value, to prevent a destabilizing exodus from commercial bank deposits.

The Rationale: Capping a Digital Bank Run

In a statement Friday, the —a body composed of government ministers from the 27 member states—endorsed the CBDC as an "evolution of money." However, it stressed the need for holding limits to "avoid the digital euro being used as a store of value" and mitigate risks to financial stability.

The primary concern is preventing an accelerated bank run. In a crisis, depositors could shift unlimited funds from commercial banks to a risk-free digital euro held directly with the . , CEO of Quadra Trade, said such a migration would "shrink banks’ deposit bases...constrain credit creation, raise funding costs for banks, and act as an unintended monetary tightening."

The Pushback: Stifling Competition for Incumbents

Critics, however, argue the caps are less about stability and more about protecting the banking industry from competition. A digital euro without limits would offer citizens a risk-free alternative to traditional deposits, threatening a core source of cheap funding for banks.

A study by Copenhagen Economics estimated that a digital euro could cut banks' net interest income by an average of , and up to for smaller lenders. "Banks profit from holding customer deposits and lending that money out," said , senior market analyst at PrimeXBT. "A digital euro without strict limits would give citizens a risk-free alternative, reducing banks’ access to cheap funding."

The debate highlights the central tension in CBDC design: how to innovate without breaking the existing financial system. While European policymakers see holding limits as a necessary guardrail, critics warn they may cap the digital euro's usefulness and entrench incumbents., CEO of the dYdX Foundation, noted the contrast with other regions, where "private stablecoins are favored for their speed, innovation, and global scale."