In what appears to be a way of controlling the digital currency, the European Central Bank (ECB) does not want citizens to possess too much money in digital currencies.
This is according to a paper that debuted this week from the ECB authored by Ulrich Bindseil, the bank’s Director General of Market Infrastructure and Payments, on Jan. 3.
Titled ‘Tiered CBDC and the Financial System’, it points out that there are advantages and disadvantages of the digital currencies tied to retail payment.
It addresses the prospect of issuing a CBDC for the European Union, and also touches on the differences between such a currency, and cryptocurrency stablecoins.
However, the note points out clearly that the issuance of CBDC should be in a way that allows the ECB to “control volume” of those currencies.
The paper reads, “It is essential to be able to steer the issuance of CBDC in such a way that it serves the efficiency of retail payments.
It states further that this should be without necessarily putting into question the monetary order by making CBDC a significant form of store of value.
Another peep into this development points that the issuance of ECB’s CBDC comes as China edges closer to becoming the world’s first state to issue a CBDC.
To address the situation, Bindseil recommends a two-tier interest rate system, which would offer “unattractive” rates to holdings above a certain threshold.
This, Bindeseil says, would reduce the likelihood of savers selling fiat for the CBDC in times of crisis.
It would have a contrast effect on banks as savers could potentially move funds out of the ECB’s jurisdiction much more quickly than they could via the banking system under such circumstances.
In other reports, China’s central bank has already been testing its CBDC with selected banks as a cryptocurrency law passed by Beijing in October entered into effect on Jan. 1.