ECB and EU governments reportedly clash over digital euro regulation

The European Central Bank and some EU governments are reportedly at odds over the regulatory framework for the digital euro.

A conflict is escalating between Europe’s powerful countries and the European Central Bank over the regulation of the digital euro, a digital form of central bank money that has been in development by the European central bank since 2021.

Several European governments, including France and Germany, claim that the ECB is overstepping its authority by controlling how much digital currency individuals can hold in central bank-backed wallets, according to a Politico report citing sources familiar with the matter.

This seemingly technical dispute has important consequences: If the ECB sets a high limit, citizens could withdraw significant amounts from traditional banks during an economic downturn, which could threaten financial stability, the report states.

Some countries are concerned that any restrictions on the digital euro could infringe on personal financial freedom, raising fears of excessive monetary control, a diplomat noted in a comment for Politico.

European states challenge ECB’s control over digital euro

The report states that the conflict between European states raises a fundamental question regarding the balance of power between the European Central Bank and EU member states. While the ECB continues to defend its monetary authority, member states are pushing back, advocating greater contribution to shaping the framework of the digital euro.

Officials from nine countries, including Germany, France and the Netherlands, emphasize that the digital euro should not fall solely under the control of the ECB and see the digital euro as a broader financial issue with far-reaching implications for daily transactions in Europe.

In mid-September, data from the US-based Atlantic Council think tank revealed that there were 134 countries around the world examining central bank digital currencies in one way or another; this figure was 35 in May 2020. More than 65 countries are in advanced stages of CBDC research in development, pilot or launch stages, including India, Australia and Brazil, the data shows.

According to the think tank, every G20 country is currently exploring its own CBDC, with 19 in advanced stages of research.