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 the central bank and therefore risk-free. This creates a trade-off between financial stability for the system and financial freedom and convenience for the individual saver.

How the Digital Euro Could Drain Commercial Bank Deposits

The money you hold in your checking or savings account is a liability for the commercial bank (the bank owes you that money). While generally considered safe due to deposit insurance, in an extreme crisis or loss of confidence (a “run”), people fear the bank might fail and they could lose access to their funds above the insured limit. The ECB simulation focuses on a hypothetical “unprecedented run on commercial banks” a crisis where depositors lose faith in the commercial banking system.

Currently, in a crisis, people withdraw money as cash (central bank money) or move it to banks perceived as safer. However, physical cash withdrawals are cumbersome and limited.
The digital euro would provide a new, easy, and instant electronic safe haven. People could quickly and seamlessly move funds from their potentially risky commercial bank deposit accounts into their risk-free digital euro wallets guaranteed by the ECB.

The Role of the Holding Limit (€3,000)

• The figure of €699 billion is specifically derived from a scenario where the individual holding limit is set at €3,000.
• The ECB’s analysis assumes that under the stress of a bank run, depositors would be conservatively assumed to fully demand digital euros up to the holding limit of €3,000 per person. When a depositor converts their commercial bank deposit to digital euros, that is liquidity that leaves the commercial bank’s balance sheet.
• If a vast number of depositors do this, the aggregate outflow can be massive, as seen by the near-€700 billion estimate.

The Global Concern: ‘Fast Disintermediation’

• A CBDC offers a perfectly safe, liquid, and potentially interest-bearing alternative to commercial bank deposits. In a crisis (or even just market uncertainty), this creates an instantaneous, attractive haven for money.
• Unlike traditional bank runs, where people had to line up physically or rely on slow digital transfers, a CBDC would allow for a near-instantaneous digital withdrawal of massive scale (sometimes called “fast disintermediation”). This could drain a commercial bank’s funding much quicker than a traditional run, potentially destabilizing the financial system rapidly.
• For countries whose economies heavily rely on bank lending (like many in Europe or emerging markets), a significant shift of deposits out of the banking system could dramatically increase banks’ funding costs, reduce their ability to lend, and thus harm the broader economy.

Limitation

A strict holding cap on CBDC balances could make the digital euro less useful as money, potentially defeating its purpose and creating new problems.
If a cap is too low (e.g., €1,000 equivalent), businesses would be unable to use CBDCs for day-to-day transactions like paying rent, salaries, or suppliers, rendering it useless for the core economy. It would slow down digital commerce and prevent the CBDC from achieving the critical mass needed to be a widely accepted means of payment.

Why would a consumer or a small business adopt a new digital currency if they hit a ceiling on the first large transaction they try to make? Low caps would limit the CBDC’s role to small, retail transactions, missing the opportunity to modernize the entire payment system.

Central banks, like the European Central Bank (ECB) researching the digital euro, are intensely focused on finding an “optimal holding limit” that balances opposing risks.
Current research suggests that an appropriate cap is one that is high enough for all routine payments but low enough to prevent significant money hoarding. For example, some models for the digital euro suggest a personal holding limit in the range of €1,500 to €3,000 as a possible sweet spot. This is enough for most daily and monthly transactions but prevents the massive shift of corporate and institutional deposits.

So, in short: Yes, a disaster can be created by a low limit, just as a disaster can be created by no limit. The challenge for every country is setting the cap at the right level to achieve its policy goals while avoiding unintended consequences.

The central bank’s rationale for the cap is not to prevent anyone from saving money it is to prevent what they call bank disintermediation.
Bank disintermediation means that people or businesses bypass traditional banks when saving, borrowing, or making payments, instead dealing directly with financial markets or alternative financial platforms.

To better understand the whole scenario, the Digital Euro CBDC will likely have a holding limit, meaning that regular people will have a maximum balance (for example, €3,000) that they can hold at any given time.
It is not a monthly spending limit. Users would be free to spend, receive, and top up their balance as long as their total holdings do not exceed the cap.
This approach aims to balance usability with stability while preventing large-scale deposit flight from commercial banks.

Ultimately, the digital euro represents a balancing act between innovation and stability. How Europe sets its holding limits will determine whether the digital euro strengthens or destabilizes the financial system.

In such a scenario, individuals might reallocate their savings toward alternative assets such as Bitcoin, other cryptocurrencies, or traditional stores of value like gold and silver, provided such options remain accessible.

For now, the global banking industry continues to advocate for robust safeguards such as holding limits to ensure that their deposit base is not fundamentally eroded by a government-backed digital alternative like the CBDC.