A major power struggle has emerged between European Union governments and the European Central Bank (ECB) over the control of the digital euro, according to a recent Politico report.
The conflict centers on the authority to set limits on how much digital currency citizens can hold in central bank-backed wallets.
Major EU nations argue about digital euro
The ECB has been developing the digital euro as a pan-European payment solution to compete with U.S. payment giants like Visa and Mastercard.
However, as the project nears implementation, major EU nations, including France and Germany, argue that the central bank has accumulated too much control over crucial aspects of the digital currency.
Under the current draft regulation, the ECB would have sole authority to determine citizens’ digital euro wallet limits.
Frankfurt views this as consistent with its role as the bloc’s monetary guardian and its exclusive right to adjust the money supply. However, at least nine EU countries have voiced opposition to this arrangement.
They argued that the digital euro transcends monetary policy and enters the broader realm of financial services.
Banking stability concerns rise
The dispute raises major concerns about financial stability. Both politicians and technocrats worry that if wallet limits are set too high, citizens might withdraw large sums from traditional banks during crises.
According to them, it can potentially destabilize the entire banking system. Some officials also express concerns about potential infringement on personal financial freedom.
The ECB argues that ensuring bank soundness falls within its supervisory responsibilities. However, member states contend that many supervisory responsibilities are defined by the legislature and not the central bank.
One proposed compromise involves legislators setting parameters within which the ECB operates while maintaining the bank’s final decision-making authority. However, according to Politico, this may not address the broader concern that the project could become a risk if implemented without adequate democratic oversight.
The conflict represents a fundamental reassessment of the balance between political and central banking authority, thirty years after the ECB became the bloc’s primary monetary guardian.
This power struggle emerges as over 100 central banks globally explore national digital currencies, sparked by Facebook’s 2019 Libra cryptocurrency proposal. The ECB has remained committed to the digital euro project, viewing it as crucial for reducing Europe’s reliance on non-EU payment services.