The European Central Bank (ECB) should carefully evaluate the potential effects of launching a digital euro on the banking sector, according to Spain’s deputy central bank governor Margarita Delgado. She warned that a digital euro could pose challenges for the stability and profitability of the banks in the euro zone.
Digital euro aims to boost European payment services
The ECB is expected to decide in October whether to proceed with a digital euro project, which would provide a digital form of central bank money that could be used by citizens and businesses for their payments. The digital euro would complement cash, not replace it, and would aim to address the gap in the European payment services market.
The digital euro would also offer a public alternative to private digital currencies, such as cryptocurrencies and stablecoins, which have raised regulatory concerns among central banks and governments. The ECB has stated that a digital euro would be based on European values and respect the privacy of its users.
Digital euro could affect banks’ liquidity and profitability
However, Delgado cautioned that the introduction of a digital euro could have significant implications for the banking system, as it would entail a transfer of funds from bank accounts to digital wallets. This could reduce the amount of deposits available for banks to lend and invest, and thus affect their liquidity and profitability.
Delgado said that the ECB should measure the impact of the digital euro on the banks before any final decision on its launch, and consider different tools to mitigate the potential risks. For example, she suggested setting a limit of around 3,000 euros ($3,200) on the amount of digital euros that users may hold, or imposing a remuneration scheme that would discourage excessive holdings.
She also said that the ECB should ensure that the digital euro does not undermine the role of banks as intermediaries and providers of financial services. She argued that banks should be able to offer innovative and competitive solutions based on the digital euro, and that they should be involved in its distribution and management.
Digital euro requires legal backing and public acceptance
Delgado also stressed that the launch of a digital euro would require a clear legal framework and a high level of public acceptance. She said that the ECB should consult with other authorities, such as the European Commission and the European Parliament, as well as with stakeholders and civil society, to ensure that the digital euro meets the needs and expectations of its users.
She added that the ECB should also conduct extensive testing and experimentation to ensure that the digital euro is safe, efficient and resilient. She said that the digital euro should be compatible with existing payment systems and infrastructures, and that it should comply with international standards and regulations.
Delgado concluded that the digital euro is a complex and ambitious project that requires careful analysis and preparation. She said that the ECB should act prudently and responsibly in pursuing its objective of providing a modern and convenient payment instrument for the benefit of the European citizens and economy.
