The ECB assessed the consequences of the introduction of the digital euro

The digital euro, the mass issuance of which the European Central Bank (ECB) plans to launch in 2024, may become a more attractive savings tool than cash and bank deposits. This is stated in the corresponding report of the regulator, published in March. On the other hand, increased interest in digital currency also creates additional risks for the banking system, analysts of the regulator say. “Against the backdrop of instability in global financial markets, this could lead to a significant reduction in the assets of European commercial banks,” the ECB warns.

The authors of the report come to three main conclusions. First, those who currently keep their savings in cash will in any case benefit from the transition to an electronic equivalent. Secondly, the introduction of a central bank digital currency (CBDC) will increase the availability of money issued directly by the government, which may lead to a partial disintermediation (i.e. elimination of intermediation) of banks in the financial system. In general, it is more profitable for depositors to transfer their money from deposits to digital currency, as this will protect their funds from the consequences of a possible banking crisis, although its probability remains low. Therefore, clients of the most stable banks may miss out on significant benefits if they withdraw their funds prematurely, the authors of the report specify. Thirdly, although the reduction in the share of deposits in the structure of banking assets will generally worsen the position of credit institutions, it will also open up new opportunities for them to restructure their portfolios. After some depositors leave the digital currency, the remaining customers are expected to show greater loyalty to classic banks, which may motivate organizations to raise interest rates on deposits, as well as increase the share of long-term loans in their portfolio, according to the ECB.