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European savings banks ask: "What is the business case for a digital euro?"

European savings banks ask: "What is the business case for a digital euro?"

European savings and retail banks have questioned the business case for a digital euro, raising concerns about the unintended consequences for balance sheet deposits and the roll out of competing instant payments products.

In a position paper, the European Savings and Retail Banking Group (ESBG) highlights three areas where the introduction of a digital euro could have a negative impact on is members.

While recognising that having digital money issued by the central bank would provide an anchor of stability for the monetary system, the association worries about the effect on balance sheet activities and the knock on consequences for consumer finance, mortgages and SME financing.

"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," states the paper.

Secondly, the document warns 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".

The trade group notes that banks are already investing heavily in instant payment technology and fears that the addition of a digital euro to the payments mix could be a "game changer" by introducing yet another competing product.

"We 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," the paper concludes. "In order to achieve this, we argue for significantly lower maximum caps on holdings. For the distributors of the digital euro, a long-term sustainable business model will be required. And if the digital euro 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."

Comments: (3)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 04 April, 2023, 09:38Be the first to give this comment the thumbs up 0 likes

One of the canonical objectives of CBDC is to disintermediate commercial banks by letting the common man have an account directly at the central bank - e.g. FedAccount in USA - and enjoy unlimited deposit guarantee since the account have sovereign guarantee.

Not sure if that's the goal of Digital Euro but if is, I can understand the reticence of the authorities / ECB to explain its business case too clearly to European banks!

A Finextra member
A Finextra member 04 April, 2023, 10:15Be the first to give this comment the thumbs up 0 likes

Indeed nobody has stated what tangible gaps or missing services in present-day European digital payments market the digital Euro is intended to plug? So far it resembles a solution looking for its purpose. With universal debit cards and credit cards already out there and the Euro instant payment being rolled out by mandatory regulatory support, what is the purpose of the digital Euro? Seize the deposit business from banks who already pay a kings ransom in deposit guarantee fees to the EU member states? Make a political move against the well working debit cards connected to "unwanted american" card schemes? Offer a service to unbanked people who cannot/want not meet the aml requirements? Build a Big Brother society where the government has control on your monies and payments? None of these possible reasons will get market driven support and the risk is that public funds are spent on a lost cause.    

Daniele Astarita
Daniele Astarita - ACI Worldwide - Naples 05 April, 2023, 11:32Be the first to give this comment the thumbs up 0 likes

I believe having commercial banks distributing/intermediating CBDC has been acknowledged as the right model for the digital Euro. On the case for issuing CBDC, there are several reasons for doing that , and among those  it's worth remembering there is a decreasing amount of cash in circulation already in several Countries, with negative impacts on real economies.