10 February 2021

Bloomberg: ECB’s Panetta Says Digital Euro May Come With a Penalty Clause

European Central Bank Executive Board member Fabio Panetta said a digital euro might be the innovation that sees negative interest rates passed directly to consumers.

Speaking at an event on Wednesday, Panetta said officials keen to prevent bank runs could make the hoarding of digital central bank money unattractive by “penalizing remuneration” of holdings in excess of 3,000 euros.

The ECB is among the top global central banks looking into a digital currency. While any digital euro would be a breakthrough in technological innovation, there are concerns that consumers with the option of storing money directly with the monetary authority would drain their commercial bank accounts during a crisis, causing financial instability.

ECB President Christine Lagarde said at a separate event that a central bank digital currency could come in about 4 years. She was also dismissive of private digital currencies such as Bitcoin and said it’s probably “out of the question” that her institution would hold it.

Read more: Central Banks Edge Toward Money’s Next Frontier in Digital World

Panetta said interest rates of -1% or -2% on a central bank digital currency probably wouldn’t be enough to thwart such runs during acute shocks. Any system would need “highly penalizing” tiered remuneration, he said.

Bloomberg

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