Digital Euro Could Lead to Significant Bank Deposit Outflows, ECB Study Finds

According to PANews, a simulation study by the European Central Bank (ECB) has revealed that the introduction of a digital euro could result in a withdrawal of 700 billion euros in deposits from commercial banks, potentially causing liquidity issues for around a dozen banks in the eurozone. This study, commissioned by European lawmakers, aims to assess the risks posed by a digital euro to the banking sector. The ECB views digital currency as an alternative to U.S.-dominated payment methods, but bankers and some lawmakers are concerned about its impact on bank funds. The study indicates that if a limit of 3,000 euros per individual is set for holding digital euros, depositors might withdraw 699 billion euros, which is approximately 8.2% of retail current deposits, with smaller institutions being more affected. In an unlikely scenario, 13 out of 2025 banks could deplete their legal cash reserves. Lawmaker Markus Ferber suggests that smaller banks could face difficulties due to high holding limits and advises caution. The ECB notes that these figures might be overestimated as they do not account for multiple accounts. Under normal operating conditions, only slightly over 100 billion euros would be withdrawn, and holding limits could ensure financial stability. The ECB also simulated scenarios with individual holding limits of 500 euros, 1,000 euros, and 2,000 euros, resulting in lower estimated outflows. The ECB stated, "The analysis confirms that holding limits can effectively restrict bank deposit outflows to levels that ensure the stability of the financial system and support the correct formulation and implementation of monetary policy."