European Saving Banks Asks Business Case For Digital Euro

European savings and retail banks have questioned the business case for a digital euro. They are worried about the unintended effects on balance sheet deposits and the rollout of competing instant payments products.

In a position paper, the European Savings and Retail Banking Group (ESBG) points out three ways that a digital euro could be bad for its members.

Even though the association knows that having digital money issued by the central bank would make the monetary system more stable, they are worried about how it would affect balance sheet activities and how that would affect 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.

Second, the document warns that savings and retail banks will have to meet a lot of obligations and requirements if they are to be the institutions that distribute the digital euro, “while a long-term business model is questionable.”

The trade group points out that banks are already putting a lot of money into instant payment technology, and it worries that adding a digital euro to the mix of payment options could be a “game changer” by adding another product that competes with existing ones.

“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.”