Banks worried

ECB rejects objections to digital euro

There is concern in the banking sector that the introduction of a digital version of the euro will result in customers withdrawing a large proportion of their funds from their accounts and shifting them into the digital euro instead.

(Bild: vectorfusionart - stock.adobe.co)

The European Central Bank (ECB) is attempting to allay concerns among banks about massive account outflows in the wake of the introduction of a digital euro. ECB Director Piero Cipollone dismissed such fears as "unfounded" in a blog post on Monday: "A digital euro will be designed as a means of payment and not for investment."

Tech companies that issue stablecoins, for example, could pose a much greater risk to the financing of banks. Banks would therefore be on the wrong track if they followed studies that ignored the design features of a digital euro.

One of the concerns in the banking sector is that the introduction of a digital version of the euro will cause their customers to withdraw a large proportion of their funds from their accounts and shift them into the digital euro instead. Banks would then lose an important source of refinancing for their loans - their ability to grant loans would be significantly restricted.

Risks combated in advance
"However, central banks have analyzed this problem and found ways to combat such risks in advance," says the blog post, which Cipollone wrote together with Ulrich Bindseil, Director General Infrastructure and Payments, and ECB advisor Jürgen Schaaf. With a digital euro, the combination of holding limits and the lack of remuneration would greatly reduce the incentives to hold large sums in a digital euro wallet.

According to the authors, there is also the so-called principle of the reverse waterfall. This means that if the wallet does not contain enough digital euros to make a payment, for example, the missing amount would automatically flow out of a docked account and fill this gap.

Banks on the wrong track
Banks are on the wrong track if they rely on studies that overlook the outlined design features of a digital euro, the authors write. Users would use the digital euro as a means of payment instead of using it for investments. In addition, banks could always offer higher remuneration to hold deposits.

In October, the ECB gave the green light for the next steps towards a digital euro. In this preparatory phase, the rules and regulations are now to be finalized and providers selected for the development of the platform and infrastructure. This phase began at the start of November and is initially scheduled to run for two years.