Digital euro: The implications for savings and retail banks

Not wanting to go unheard in this important period of discovery with the digital euro project, the ESBG has been taking an active role in digital euro-related discussions and overall welcomes the digital euro from the viewpoint that having digital money issued by the central bank would provide an anchor of stability for the monetary system.

Digital euro: implications for savings and retail banks

European Savings and Retail Banking Group (ESBG) believe that the digital euro would strengthen the monetary sovereignty of the euro area. However, it predicts that the introduction could also have some major unintended consequences impacting savings and retail banks if not addressed properly.

In a position paper, ESBG reflects on the effect of the digital euro on retail and saving banks, highlighting three areas where the introduction could have a negative impact on its members.

Firstly, the digital euro can severely affect balance sheet activities – the core business for savings and retails banks. Detailed work is still needed to identify a suitable model for distributing, storing and exchanging digital currencies that balances the needs of maintaining the effectiveness of monetary policy transmission mechanisms, customer service and regulatory compliance.

Otherwise, and if the digital euro becomes “too successful”, the deposit outflow could reduce the balance sheets of banks and eventually their capabilities to finance the economy – as a result, possibilities for consumer finance, mortgages and SME financing will be reduced and the potential impact on banks’ liquidity positions is very relevant.

Secondly, lots of obligations and requirements will be put on savings and retail banks as envisioned institutions for the distribution of the digital euro, whilst a sustainable long-term business model is questionable.

Finally, cashless payments in the euro area are flourishing and are showing healthy growth rates.

Under a push from regulators, banks are already heavily investing in payment solutions (notably based on instant payments) that address the need for European sovereignty in payments.

These new solutions under development will need to find their place in the already competitive payments mix – adding yet another competing payment product by positioning the digital euro as such is a game changer. At any rate a level playing field needs to be present.

Therefore, although supportive of the digital euro, the ESBG are of the opinion that many legitimate and reasonable questions still need to be answered and a successful implementation needs to properly address the above concerns.

In order to achieve this, they argue for significantly lower maximum caps on holdings. For the distributors, a long-term sustainable business model will be required.

And if it will be positioned as a retail payments product, it should not use its privileged position as a public-money funded product by mandatory acceptance requirements that distort the competitive retail payments market.

“ESBG and its members welcome the digital euro as a logical representation of central bank money in the digital age, and we also subscribe to the policy objectives of strengthening the monetary sovereignty of the euro area and the additional financial stability it could bring,” comments Diederik Bruggink, Head of Department – Payments, Digital Finance and Innovation.

“However, there are some areas that closely need to be looked at as the possible introduction of the digital euro could also have some impact of existing business of savings and retail banks.

A digital euro that is too successful will reduce the possibilities for our member banks to finance the economy, which could have a negative impact on the availability of mortgages, personal loans and financing of SMEs, and the costs thereof.

In our paper, we explain this in more detail, together with some more possible unintended consequences.”

To read the full paper CLICK HERE

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