Digital Euro Holding Limits and Monetary Policy Implementation: A Microdata-Based Perspective

Abstract

This paper conducts a quantitative analysis to calculate a potential digital euro (D€) holding limit robust to adverse conditions. It draws on a detailed and unique data set that includes individual bank level data for the entire euro area. We use data and a simulation approach on the number of accounts in individual institutions and on account balance distribution. To assess the D€ impact on banks, we conduct our analysis at two different points in time that reflect different monetary policy environments with accommodative and restrictive stance. Our calculations reveal a lower bound holding limit of around 1000€ that almost all banks can handle. The results show a strong heterogeneity between the various euro area banks, as many could offer significantly higher limits. For the implementation of holding limits, we therefore propose a model that has a low mandatory limit which every institution must offer.