Digital Euro, Monetary Objects and Price Stability—a Legal Analysis

Abstract

The Eurosystem is mandated to safeguard price stability according to Article 127 TFEU. Based on a theoretical and policy-oriented approach, this article sheds light on a second public good with enormous practical relevance both for financial markets and institutions as well as for the general public that the Eurosystem, and ultimately the European Central Bank (ECB), must safeguard according to Article 128 TFEU: the availability of optimal monetary objects for the public. While monetary policy constitutes the instrument used to keep prices stable, the availability of optimal monetary objects is ensured through the issuance of ‘cash’ that serves as both money with selected properties and an anchor for other monies of the same currency, including sight deposits at commercial banks. Today, the role of optimal monetary objects is (still) primarily fulfilled by tangible banknotes. As the use of tangible banknotes declines, however, a digital equivalent and complement—a digital euro—becomes increasingly necessary. Accordingly, the article concludes that the ECB is both entitled and obliged de lege lata to issue a digital euro on the basis of Article 128 TFEU. It further explains that neither tangible cash nor a digital euro can simultaneously be used as instruments in themselves to maintain price stability.

Keywords: CBDC, digital euro, TFEU, Eurosystem, European Central Bank (ECB), banknotes, cash, monetary objects, monetary objectives, monetary policy instruments

JEL Classification: E40, E42, E51, E52, E58, G21, G28, H41, H44, K00, K23, O33, O52