Bad money drives out good. This law, the Gresham’s law, has been confirmed throughout the ages.
Yet the European Central Bank believes that good money - digital euro backed by the ECB - will drive out bad - money backed by unstable banks.
As a result, they impose restrictions. To limit how much one can hold - up to 3000 euro - and where - with private actors.
To be clear, a digital euro makes sense in a digitalised economy. To maintain monetary sovereignty. To prevent private currencies - bad money - from taking over.
Yet, I have doubts about the restrictions
First because the digital euro should be viable. And why use something you can hardly hold?
Second as digital euro deposits should compete with bank deposits.
Encouraging banks, for example, to let consumers benefit from recent interest rates hikes.
Of course, this raises worries about bank funding.
But the digital euro doesn’t introduce such problems. It merely highlights the fluidity of deposits in a digital age.
Silicon Valley Bank was merely its first victim.
I understand the ECB’s wish to prioritise stability, initially. But restrictions should weaken over time, exactly as the Bank of England proposes.
Dear colleagues, the digital euro is a political project. Not technocratic.
So project of the digital euro needs political backing. So, let the Commission put all options on the table to have a real political debate.