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ECB Considers Capping Digital Euro in Circulation at 4,000 per Capita, Panetta Reveals

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ECB Considers Capping Digital Euro in Circulation at 4,000 per Capita, Panetta Reveals

With concerns about financial stability in mind, the European Central Bank (ECB) plans to limit digital euro holdings, according to Board Member Fabio Panetta. The plan is to have a maximum amount of digital cash in circulation similar to that of euro banknotes today, the official unveiled.

Eurozone’s Central Bank to Keep Total Digital Euro Holdings Below 1.5 Trillion

A digital euro could potentially lead to the conversion of a large share of bank deposits in the euro area into digital cash, Member of ECB’s Executive Board Fabio Panetta warned in a statement at the European Parliament’s Committee on Economic and Monetary Affairs (ECON).

Deposits are the main source of funding for euro area banks, Panetta pointed out, emphasizing the authority is looking closely at the financial and monetary risks associated with the introduction of a central bank digital currency (CBDC). He explained:

If not well designed, a digital euro could lead to the substitution of an excessive amount of these deposits. Banks can respond to these outflows, managing the trade-off between funding cost and liquidity risk.

Fabio Panetta believes it’s possible to prevent the use of the digital euro, which is still under development, as a form of investment rather than a means of payment. One of the tools the ECB intends to employ is imposing quantitative limits on individual holdings, he noted.

According to the regulator’s preliminary analyses, maintaining the total of digital euro holdings in the range of 1 to 1.5 trillion would help avoid potential negative effects for Europe’s financial system and monetary policy. The banker elaborated:

This amount would be comparable with the current holdings of banknotes in circulation. As the population of the euro area is currently around 340 million, this would allow for holdings of around 3,000 to 4,000 digital euro per capita.

ECB to Discourage Large Investments in Its Digital Currency

In parallel, the ECB may also take steps to discourage investments in digital cash by applying “disincentivising remuneration above a certain threshold, with larger holdings subject to less attractive rates,” Panetta added. The bank is yet to decide how to combine the two measures.

To achieve its objectives in that regard, the monetary authority will seek a gradual adoption of the CBDC, Panetta indicated, predicting it would likely take several years before a majority of Europeans hold the digital euro.

The official also remarked the ECB will aim for simplicity, in terms of technical implementation and user experience, when developing tools for the digital euro. “We want to provide people with a product that is easy to understand and easy to use,” the board member said. Ensuring privacy and contributing to financial inclusion are among the goals as well.

Fabio Panetta also insisted the European Central Bank needs to provide a digital currency of its own to “avoid confusion about what digital money is.” He reiterated previous criticism against cryptocurrencies which, in his view, cannot perform this function and called for closing any remaining regulatory gaps in the crypto ecosystem.

What do you think about the ECB’s intentions regarding the design of the digital euro? Let us know in the comments section below.

US Lawmakers Push for Urgent Stablecoin Regulation — Fed Warns of Stablecoin Runs, Janet Yellen Cites UST Fiasco

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US Lawmakers Push for Urgent Stablecoin Regulation — Fed Warns of Stablecoin Runs, Janet Yellen Cites UST Fiasco

As U.S. lawmakers push for the urgent regulation of stablecoins, the Financial Stability Oversight Council (FSOC) and the Federal Reserve Board warn about the risks of stablecoin runs that threaten the country’s financial stability. Treasury Secretary Janet Yellen brought up the terrausd (UST) fiasco as an example of why a comprehensive regulatory framework is urgently needed.

Treasury Secretary Janet Yellen Testifies Before Senate Committee

Stablecoins have become a hot topic in Washington. Following Monday’s terrausd (UST) fiasco, U.S. lawmakers are calling for the urgent regulation of stablecoins.

On Tuesday, U.S. Treasury Secretary Janet Yellen brought up UST as an example of a “stablecoin run” during her testimony before the Senate Committee on Banking, Housing, and Urban Affairs on the Financial Stability Oversight Council (FSOC) Annual Report.

Senator Pat Toomey (R-Pa.) asked Yellen to confirm her view on the need to regulate stablecoins. “I would like to ask if you can confirm for the record here that it is still your view that it is important, I would argue even urgent, for Congress to pass legislation governing the regulations of the payment stablecoins,” he said.

Yellen replied:

Yes, I’m happy to confirm that, Senator Toomey.

She continued: “The president’s working group issued a report concluding that the current statutory and regulatory frameworks don’t provide consistent and comprehensive standards for the risks of stablecoins as a new type of payment products, and urges Congress to enact legislation to ensure that stablecoins and such arrangements have a federal prudential framework.”

The treasury secretary elaborated: “I would urge a bipartisan action to create such a framework. We would look forward to working with you.” She added:

There was a report this morning in the Wall Street Journal that a stablecoin known as terrausd [UST] experienced a run and had declined in value.

“I think that simply illustrates that this is a rapidly growing product and there are risks to financial stability and we need a framework that’s appropriate,” Yellen stressed.

Toomey quickly responded: “It’s important to note that the stablecoin to which you refer, I believe, is an algorithmic stablecoin. So that means by definition it is not backed by cash or securities as the — if you can call them — ‘more conventional stablecoins.’”

The stablecoin terrausd (UST) lost its parity with the U.S. dollar and dropped to an all-time low of $0.66 per unit on Monday.

Financial Stability Oversight Council Annual Report Warns About Stablecoin Runs

The FSOC annual report also states that stablecoins may be vulnerable to run risks. Noting that “the potential for the increased use of stablecoins as a means of payment raises a range of prudential concerns,” the report states:

If stablecoin issuers do not honor a request to redeem a stablecoin, or if users lose confidence in a stablecoin issuer’s ability to honor such a request, runs on the arrangement could occur that may result in harm to users and the broader financial system.

Federal Reserve Board’s Report on Financial Stability Says Stablecoins Are Prone to Runs

The FSOC’s view on stablecoins is shared by the Federal Reserve. The Board of Governors of the Federal Reserve System published its semi-annual Financial Stability Report Monday similarly warning about the run risks of stablecoins.

Among the risks discussed in the report is “funding risks,” which “expose the financial system to the possibility that investors will ‘run’ by withdrawing their funds from a particular institution or sector,” the report details, elaborating:

Some types of money market funds (MMFs) and stablecoins remain prone to runs.

In addition, “The stablecoin sector continued to grow rapidly and remains exposed to liquidity risks,” the report notes.

What do you think about Treasury Secretary Yellen’s comments and the warnings by the Federal Reserve and the Financial Stability Oversight Council on stablecoins? Let us know in the comments section below.

JPMorgan: Global Regulation Urgently Needed for Banks to Help Clients Invest in Crypto

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JPMorgan: Global Regulatory Framework Urgently Needed for Banks to Help Clients Invest in Crypto

A globally consistent crypto regulatory framework is urgently needed to allow banks to handle crypto assets on behalf of large customers, said a JPMorgan executive. “We need a globally consistent regulatory framework. It’s important that we get to a solution as quickly as possible.”

Global Regulatory Framework Urgently Needed to Allow Banks to Offer Crypto Exposure to Clients, Says JPMorgan

Debbie Toennies, managing director and head of Regulatory Affairs at global investment bank JPMorgan Chase & Co., talked about global cryptocurrency regulation applicable to banks Tuesday at an event held by the International Swaps and Derivatives Association.

The JPMorgan executive said that new rules are urgently needed to give banks certainty in handling crypto assets on behalf of large customers who seek exposure in this asset class.

A growing number of large institutions, including hedge funds, are interested in investing and gaining exposure to the crypto asset class. According to Wells Fargo, cryptocurrency has entered the “hyper adoption phase.”

Noting that some very large players had asked JPMorgan to hedge their exposures to crypto assets, Toennies opined:

I do think we need a globally consistent regulatory framework. It’s important that we get to a solution as quickly as possible.

Global banking regulators at the Basel Committee on Banking Supervision are discussing rules for banks to deal with crypto assets. In June last year, the Committee proposed dividing crypto assets into two groups and regulating them based on their market, liquidity, credit, and operational risks to banks. However, final rules are not expected until at least next year.

Toennies revealed that the global investment bank has been talking to different jurisdictions about “interim treatment” for crypto assets while waiting for the Basel Committee to establish applicable rules.

The JPMorgan head of Regulatory Affairs detailed:

The real risk to all of our economies is that if we don’t get to a solution that allows banks to engage with our clients in a hedged way, this activity will go outside the regulatory perimeter, and I am concerned about financial stability.

Do you agree with JPMorgan about banks urgently needing clear rules on crypto? Let us know in the comments section below.

IMF Urges El Salvador to Drop Bitcoin Tender Law, Executive Board Report criticizes BTC Bonds, Chivo Wallet

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IMF Urges El Salvador to Drop Bitcoin Tender Law, Executive Board Report criticizes BTC Bonds, Chivo Wallet

The International Monetary Fund (IMF) has been very critical of cryptocurrencies and according to a report on Tuesday, the IMF’s board has “urged” El Salvador to discontinue its bitcoin tender status. A few members of the IMF’s board said the country’s decision to leverage bitcoin within its financial system could pose risks.

IMF Report Attempts to Persuade El Salvador to Drop Bitcoin Legal Tender Status, Director’s Are Concerned About Bitcoin Bonds and Chivo Wallet’s Regulatory Oversight


According to a report published by the IMF, a global financial institution that promotes financial stability and economic growth, the organization believes El Salvador should end its relationship with bitcoin (BTC). The report notes that El Salvador is being “urged” by the IMF board directors to do away with the bitcoin law as soon as possible.

IMF board members have “urged the authorities to narrow the scope of the Bitcoin law by removing bitcoin’s legal tender status,” the report detailed on Tuesday. The news follows a blog post published two weeks ago by IMF economists which stressed: “[cryptocurrencies] could soon pose risks to financial stability especially in countries with widespread crypto adoption.”

The IMF director’s report also noted that some members of the IMF are “expressed concern over the risks associated with issuing bitcoin-backed bonds..” During the first week of January, the Salvadoran government introduced 20 bills to provide a legal framework for its upcoming bitcoin bonds.

El Salvador has been headstrong about integrating bitcoin (BTC) into its economy, and Salvadoran president Nayib Bukele revealed a bitcoin mining operation powered by volcanic energy at the end of September. This month Bukele explained El Salvador was making investments in order to bolster the country’s geothermal energy production.

The president of El Salvador has been buying bitcoin and adding it to the country’s treasury, according to his announcements on Twitter. The president of El Salvador said the country purchased 410 bitcoin last week, and the country has a total stash of ​​1,801 bitcoins.

In addition to the IMF’s statements about the bitcoin tender law and bitcoin-backed bonds, the global financial institution criticized the Chivo e-wallet.

“Directors agreed on the importance of boosting financial inclusion and noted that digital means of payment—such as the Chivo e-wallet—could play this role,” the IMF report concludes. “However, they emphasized the need for strict regulation and oversight of the new ecosystem of Chivo and Bitcoin.”

What do you think about the IMF’s opinion that El Salvador should drop its bitcoin tender law? What do you think about the financial institution’s opinion about bitcoin-backed bonds and Chivo e-wallet? Let us know what you think about this subject in the comments section below.

British Lawmakers Say a CBDC Is Likely to Hurt Financial Stability — Digital Pound Benefits Overstated

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According to British lawmakers, a central bank digital currency (CBDC) is likely to raise the cost of borrowing while hurting financial stability. They insist the touted potential advantages of a digital pound are being overstated.

Erosion of Privacy

British lawmakers have said the use of a central bank digital currency when making regular payments could potentially hurt financial stability and raise the cost of borrowing, a report has said. In addition, they insist the increasing use of the CBDC could also enable the central bank to monitor spending and therefore erode privacy.

As per a Reuters report, the lawmakers believe the benefits of CBDC may have been exaggerated and that there are other ways the U.K. can counter the threat posed by cryptocurrencies. One of the lawmakers who is quoted in the report speaking out is Michael Forsyth. He said:

We were really concerned by a number of the risks that are posed by the introduction of a CBDC.

Forsyth, who is the Economic Affairs Committee chairperson, also said the touted benefits of having a CBDC had been “overstated.” He suggested these benefits can still be achieved with a less risky alternative such as the regulation of crypto-issuing tech companies.

Lawmakers Want Parliament to Have a Say

In a report tabled by Forsyth’s committee to the British parliament, the lawmakers nevertheless acknowledge that a wholesale CBDC, which can be used to move large funds, will potentially result in more efficient securities trading and settlement. However, the lawmakers still want the central bank and the finance ministry to weigh the benefits of using the CBDC versus the expansion of the existing system.

Forsyth is quoted in the report arguing that lawmakers must have a say before the Bank of England and the U.K. Treasury are allowed to proceed with issuing the CBDC.

“[A CBDC could have] far-reaching consequences for households, business and the monetary system. That needs to be approved by parliament,” Forsyth is quoted stating.

Do you agree with the British lawmakers’ views on CBDCs? Tell us what you think in the comments section below.