Copenhagen Economics: The impact of a digital euro on financial stability and consumer welfare
20th December, 2023
The banking industry supports the objective of increased European strategic autonomy in payments and sees that new forms of digital currencies and payment methods will be needed to support the multi-faceted digitalisation of the economy.
We envision a future digital economy where Europe has a strong, resilient, innovative, and competitive payments and digital assets ecosystem, with enhanced European strategic autonomy. A digital euro – if appropriately designed and calibrated – could be one of the new tools to meet users’ evolving payment needs.
Differently from a wholesale CBDC – which as a concept was introduced in the eurozone already in 1999 – a retail CBDC is a much more complex endeavour. It introduces a new concept, it interacts with private electronic payment means, and it requires an in-depth exercise to balance different impacts on the economy as a whole and financial intermediation in particular.
There are three areas of possible impacts that should be counterbalanced from the start:
- the risk of displacement of bank deposits, with the potential consequences of a massive adoption of the digital euro: increase of funding costs, reduction of credit for the economy, especially long-term financing that is backed with stable deposits, potential inability to replace the lost deposits from the market especially in times of stress;
- the investment and recurring costs of implementation of such a complex and large-scale project, with a consequent reduction of innovation capacity and therefore of competitiveness for banks;
- the overlap with existing payment means and the possibly fundamental alteration of the retail banking model, with a consequent erosion of related revenue streams that may affect the profitability of banks, which is vital for their resilience.
Please see the EBF full statement and the CE study here.
