Unraveling the Debate: Experts Clash Over the Digital Euro's Future

In a riveting two-hour hearing, the European Parliament plunged into the heart of the ongoing debate surrounding the digital euro, seeking clarity on the pros and cons of central bank digital currencies (CBDCs). Expert testimonies, however, did little to quell the legislative uncertainty, revealing a landscape where consensus remains elusive. The deliberation, framed by diverse perspectives, spans critical questions from individual holding limits to the fundamental necessity of a digital euro.

During Tuesday's hearing, four expert witnesses took the stage, shedding light on the intricacies of CBDCs while legislators scrutinized proposed laws. Yet, consensus proved elusive, with differing opinions on pivotal issues. Notably, Italian economist Ignazio Angeloni dismissed the notion of a CBDC, asserting that such a move should only be considered if there is clear evidence of system malfunction, an occurrence he deemed absent at present.

Angeloni's skepticism, outlined in his April research paper titled "Digital Euro: When in Doubt, Abstain (but be Prepared)," questions the market niche for a digital euro in today's competitive payment landscape. He highlights the potential "adverse incentive structure" between retail banks and the digital euro, cautioning against the consequences of a run on traditional bank deposits.

The debate over holding limits further fueled the disagreement among experts. Vicky Van Eyck, Executive Director of Positive Money Europe, proposed a gradual lifting of a temporary holding limit, emphasizing the need for stress tests and research to guide the process. In contrast, Marieke Van Berkel, Head of Retail Banking at the European Association of Cooperative Banks (EACB), warned of potential fallout for big banks if CBDC-induced deposit contractions occur, underlining the urgency of finding an equitable solution.

Amidst the discord, Miguel Fernández Ordóñez, a governor for the Bank of Spain, emerged as a voice of optimism. He positioned the digital euro as a safer alternative to traditional bank deposits and private cryptocurrencies. Ordóñez hinted at the possibility of a CBDC-induced contraction on deposits leading to deregulation in the banking sector, potentially eliminating the need for measures like deposit insurance.

As the digital euro debate unfolds, expert opinions clash, leaving the legislative path uncertain. The hearing exposed a spectrum of viewpoints, from skepticism about the digital euro's necessity to optimism surrounding its potential benefits. The looming question of individual holding limits adds complexity, emphasizing the need for a nuanced approach. In a financial landscape characterized by rapid shifts, the fate of the digital euro remains uncertain, with experts yet to find common ground on this pivotal issue.