Global: ECB Executives Address Banks’ Concerns on Digital Euro, Advocate Priorities

Amidst ongoing discussions surrounding the digital euro, European Central Bank (ECB) executives are responding to persistent objections raised by banks, emphasizing that many concerns have already been addressed within the design framework of the digital currency.

In a recent column penned by ECB board member Piero Cipollone and his colleagues, published on Feb. 19, the executives sought to clarify misconceptions regarding the impact of a euro central bank digital currency (CBDC) on bank intermediation. They noted that despite the inclusion of mitigation measures in the CBDC design, banking associations and scholars have continued to express concerns about potential risks associated with disintermediation.

The authors highlighted various design elements incorporated into the digital euro aimed at discouraging mass transfers of funds from commercial bank accounts to digital euro wallets. These measures are intended to promote the use of the digital euro for payments rather than investment, with banks retaining the ability to compete for deposits by adjusting interest rates.

Addressing claims that the digital euro could precipitate a widespread banking crisis or lead to a loss of deposits in the long term, the authors provided counterarguments, emphasizing that such fears may be unfounded. They also underscored the importance of considering central bank money in circulation rather than solely focusing on digital euro volumes.

Furthermore, the executives highlighted that while central banks are often viewed as potential threats to the banking industry, other entities such as stablecoins and e-money institutions, including those associated with major tech companies, pose significant competition to traditional banks.

In concluding their remarks, the authors urged banks to recognize and address the broader challenges they face in ensuring stable funding through deposits, rather than solely focusing on the perceived shortcomings of CBDC.

While the ECB continues its efforts to provide clarity and address concerns surrounding the digital euro, skepticism and debate persist among stakeholders, with some expressing apprehensions about potential implications on individual privacy and economic freedom. ECB President Christine Lagarde has previously dismissed concerns about a centralized digital currency as akin to conspiracy theories, emphasizing the ECB’s commitment to safeguarding individual liberties.

The ECB’s announcement in October regarding the advancement of the digital euro project into the preparation phase underscores the institution’s proactive approach to exploring the potential of digital currencies in the modern financial landscape.