European Central Bank and digital euro versus commercial banks

Previously, the objections of European banks on the issue of the digital euro were already taken into account in the project. But this has not stopped these financial institutions and new objections continue to come. In general, they can be understood, because CBDC could threaten their existence.

Recently, the European Central Bank (ECB) has been actively sharing information about the digital euro project in different formats. As this process progresses, bankers are increasingly expressing concerns and dissatisfaction with such an innovation as the European CBDC.

On February 19, ECB leaders, including board member Piero Cipollone, published a two-part column on banking intermediation. Particular attention is paid to the potential concerns of banks regarding the diminishing importance of their role as a financial intermediary due to the introduction of the euro central bank digital currency (CBDC):

In their blog, ECB representatives summarize several measures included in the digital euro, necessary to prevent mass transfers of funds from citizens' bank accounts to digital assets. These measures promote the use of the digital euro as a means of payment rather than as an investment. The authors of the article note that banks can attract customers by increasing interest rates on deposits.

The ECB article presents arguments that contradict claims about the possible emergence of an economy-wide banking crisis as a result of the introduction of a digital euro, as well as the risk of banks losing deposits as a source of refinancing in the long term.

Their arguments regarding the use of fiat funds may seem somewhat original. They note that: “Consistent forecasts of future digital euro volumes in banking system-funded studies ignore a key variable (i.e. central bank money in circulation).”

It is likely that the main threat to the banking system is not central banks.

By focusing on obvious shortcomings and trying to fight CBDC, banks are neglecting many other problems that need to be addressed to ensure a sustainable future for banks, the ECB authors emphasize. And it’s hard to disagree with them.

During her appearance before a European Parliament committee in September, ECB President Christine Lagarde referred to “the conspiracy theory that is being actively discussed regarding CBDC, as if Big Brother will suddenly take full control.”

Last October 2023, the ECB already announced that it is moving to the preparation phase of the digital euro project.

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