The ECB board member spoke about the risks for banks that will arise in the event of a possible launch of the digital euro. However, government cryptocurrency design will help eliminate most of these.
At the ECB’s online seminar last week, European Central Bank board member Fabio Panetta outlined three potential types of risks to banks from the EU’s state cryptocurrency, the digital euro, if issued.
The first possible risk is the rejection of the intermediation of banks. If more payments are made using the digital euro, the potential for banks to participate in fewer payments. Citizens may also choose to keep their money in government cryptocurrency rather than in a bank account, even during stable periods.
Without these deposits, banks would have to raise money elsewhere, which is likely to be more expensive. This could lead to a decrease in the number of available loans, which could affect economic activity. Panetta noted that the design of a possible digital euro could significantly affect these risks. He also sees a constant need for banks as intermediaries, as the ECB has no plans to interact directly with citizens.
The second area of risk is the transfer of money into government cryptocurrency, which will cause a massive leak of digital money from commercial banks. Panetta stated that it was unlikely that such a situation would occur suddenly. There are other first lines of defense, such as deposit guarantees, supervision, and the role of the lender of last resort. However, he acknowledged that there was still some risk, and the design of the digital euro should solve this problem.
The third potential risk is the widespread international use of the digital euro. On the plus side, government cryptocurrencies can be a useful payment tool for cross-border retail transactions that will make money transfers easier. But if non-residents start holding a significant amount of money in the digital euro, holdings could increase or decrease very rapidly in the event of international shocks.
Research has shown that, due to government cryptocurrencies, exchange rates can be more volatile and affect the foreign economy. But if other countries issue digital currencies, but the EU does not, it could make the region more vulnerable to economic shocks.
According to Panetta, the design of the digital euro can be designed in such a way that there is a limit on the number of electronic euros that one person can own – the figure € 3,000 was mentioned. The aim is to discourage the digital euro from being used as an investment vehicle.
The ECB still wants to make large transactions with government cryptocurrencies possible so that any excess amount is automatically converted into bank account balances. Potentially above the limit, fees may apply that make it unattractive to use the digital euro for anything other than payments.
Bank of America analysts warned in December that banks operating in the European Union could be seriously affected if the digital euro is issued and widely adopted. In November, European Central Bank President Christine Lagarde said that EU currency regulators could issue a digital euro in the next two to four years.
