Ulrich Bindseil, Director General of Market Infrastructure and Payments at the European Central Bank (ECB), Piero Cipollone, member of the ECB’s Executive Board, and Jürgen Schaaf, adviser on Market Infrastructure and Payments, have set out to allay some of the fears of stakeholders in the banking sector about the risk of banking disintermediation if the digital euro project materialises, in an opinion piece published on Monday 19 February in VoxEU, the policy portal of the Centre for Economic Policy Research.
The authors of the opinion piece believe that central bankers have taken these concerns seriously and have responded by making design choices for the digital euro project (see EUROPE 13274/29).
They point out that the digital euro project includes a combination of safeguards to prevent these effects in particular, notably the individual holding limit or the non-remuneration of digital euro assets.
For online payments, users will be able to link their digital euro account to a payment account, eliminating, through a reverse cascade mechanism, the need to pre-fund a digital euro account through a reverse waterfall mechanism (offline use will require pre-funding). Finally, companies will not be able to store digital euros.
The authors stress that it is up to banks to offer attractive remuneration and products to retain deposits.
They also believe that the digital euro would not necessarily facilitate mass withdrawals by individuals in the event of a crisis involving a bank, as digital euro holdings are limited.
The authors claim that some studies forget to include banknotes in their analysis of the total amount of public money in circulation.
They point out that the decline in the use of banknotes for day-to-day transactions may also reduce the demand for banknotes and therefore risk reducing their attractiveness as a store of value.
Overall, the authors believe that digitalisation could lead to “lower real growth in central bank money in circulation than in the past, or even to a decline”.
Link: https://aeur.eu/f/aws (Original version in French by Émilie Vanderhulst)