European governments and the European Central Bank (ECB) are engaged in a power tussle over the control of the digital euro, a report by Politico has revealed.
The issue stems from choosing the entity to authorize limits on how much citizens can hold in their central bank-backed wallets.
European Union governments make digital euro argument
The European Central Bank has been working on the digital euro as a pan-European payment solution for quite a while. The payment solution has also been tipped to rival United States payment giants like Visa and Mastercard.
However, with the payment solution in its final stages, European nations are worried about an aspect of the digital currency. Countries like France and Germany argue that the ECB has major control over the wallet limits of the users.
According to the current draft regulation, the ECB is the only entity with a say on how much balance users can have in their wallets.
Frankfurt sees it as its role as the monetary guardian of the bloc and it has a right to adjust the supply. However, other countries have now come with opposing views to this development.
Most of them argue that the digital euro cannot be regulated by monetary policy as it is in the same league as financial services.
Financial stability concerns on the horizon
The dispute has created a lot of concerns about financial stability. Market participants are worried that if the limits are too high, there could be large withdrawals from traditional banks during crises.
The ECB has also argued that ensuring that banks have the required soundness falls under its responsibilities. However, many countries oppose the claim, noting that the responsibilities are defined by the legislature and not the central bank.
One of the proposed solutions for the issue is for legislators to set parameters under the operation of the ECB while giving the bank the freedom to make final decisions. However, the Politico report maintained that the solution might pose a risk if it is implemented without needed oversight.
The conflict seems to establish a balance between political and central bank authorities. It is coming thirty years after the ECB assumed the position of the bloc’s main guardian.
The power tussle is also coming after about 100 European banks are looking into the creation of their national digital currencies. The ECB is still committed to creating the digital euro, seeing it as an avenue to reduce its reliance on non-EU payment methods.