Council of EU Backs ECB's Digital Euro Holding Caps to Protect Financial Stability
On December 23, 2025, the Council of the European Union endorsed the European Central Bank's (ECB) plan to explore a digital euro, describing it as an evolution of money and a tool to enhance financial inclusion. This backing reflects broad national alignment among EU member states, increasing the likelihood that upcoming legislation will adopt the ECB's approach.
The ECB proposes holding limits on digital euro balances in online accounts and wallets to prevent the currency from functioning as a store of value and to safeguard financial stability. These caps aim to avoid a large-scale migration of deposits away from commercial banks to the ECB, which could provoke bank runs during times of stress and restrict credit creation.
The ECB has warned that growth in private stablecoins might lead to retail deposit outflows and more volatile bank funding. By limiting digital euro holdings, the design envisions the digital euro primarily as a payments rail rather than a balance-sheet asset. Analysts note that these ceilings shield banks from competition by preventing the digital euro from becoming a risk-free substitute for deposits, potentially reducing its overall usefulness.
Within the euro system, most money is created by commercial banks through lending activities. Allowing the digital euro to be freely held as a store of value could shrink the deposit base and raise funding costs for banks, which the ECB seeks to avoid through these proposed limits.
