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."