Fast Disintermediation: The Real Reason Behind the Digital Euro Cap
The digital euro, as an electronic form of risk-free central bank money, creates an easily accessible, instantaneous, and highly attractive safe haven for retail depositors during a financial crisis or panic. This direct competition for deposits, especially under stress, is why commercial banks and some lawmakers fear the digital euro could significantly reduce the banks' primary source of funding (retail deposits), which would then threaten their liquidity and profitability. The holding limit is a key design feature intended to prevent a larger, more destabilizing outflow, even in the worst-case scenario. The risk is that in times of financial stress or a loss of confidence in commercial banks, depositors could rapidly and massively transfer their funds out of commercial bank accounts and into a CBDC, which is a direct liability of…
