MNI INTERVIEW: Digital Euro Risks Failure-Ex Bank Of Spain Gov

The digital euro project will fail if, as appears likely, a holding limit of 3,000 euros per person is applied, former Bank of Spain Governor Miguel Angel Fernandez Ordonez told MNI, adding that European authorities are over-favouring commercial banks and missing opportunities from financial innovations such as stablecoins.

“It is said to have been designed as a means of payment but, due to that low limit, practically almost nobody will use it,” Fernandez Ordonez, who served as governor from 2006 to 2012, said in an interview, noting that the restriction on holdings was designed to prevent an outflow of deposits from banks, which dominate Europe’s financial system.

Still, the launch of the digital currency, which requires approval by the European Parliament and is not projected before 2027, could awaken European citizens to the potential of digital currencies, he said, adding that this could in turn lead to pressure to raise the limit on holdings.

"The ECB is already issuing digital euros with TARGET, which can't lead to a crisis, but now it's just a privilege for banks, which, curiously, issue means of payment that can cause financial crises and require bailouts," said Fernandez Ordonez.

“The digital euro would be worthless, but if the limit is raised could be useful.”

US STABLECOINS OUTPACE DIGITAL EURO

Widely-held views of what is accepted as liquid money have to change, according to the former central bank chief, adding that the digital euro would be more useful if it were allowed to serve a similar function to bank deposits. 

The timid progress on the digital euro comes as the U.S. pushes aggressively into stablecoins, with the GENIUS act. While Fernandez Ordonez is not an advocate of stablecoins, he said Europe should take a similarly laissez-faire approach to Washington’s. (See MNI: China To Test Offshore Stablecoin As U.S. Coins Spread)

“With regards to regulation, I am in favour of letting people do what they want and only moving in when there is a problem, which is a bit the approach taken in the U.S.,” he said. “In the U.S., banks and the crypto world have joined forces against CBDCs.”

European requirements for depositing funds in European banks and the 2024 Markets in Crypto Assets (MiCA) regulations make it nearly impossible for a company to create an attractive euro stablecoin, Fernandez Ordonez said.

But U.S. authorities have made a dangerous mistake by easing some of the most restrictive post-financial crisis regulatory measures taken under Basel III, he said, warning that this increases the potential for systemic instability. (See MNI INTERVIEW: Stablecoin Boom Adds Uncertainty To Fed Policy)