BUSTED: DIGITAL EURO WON'T BREAK THE BANKS
The ECB goes on the attack, trashing bank's claims of disruption!
Links to the two hard-hitting articles: Vox CEPR and a derivative article on the ECB’s Website that shows that this is almost, but not quite, ECB policy.
Revenge is a dish best served cold as senior European Central Bank (ECB) executives go on the attack debunking bank claims that the digital euro will “break the banks.”
This article debunks banks’ claims of digital euro disruption and is the most direct and forceful rebuttal we've seen by the ECB’s digital euro team.
Interestingly, this article shatters the normal “clubby” atmosphere between central and commercial bankers.
Let’s break this down into a review of digital euro design features and then the response from the ECB team to banks’ three biggest complaints.
Digital Euro Design Features Limiting Bank Impact
Individual digital euro holdings would be limited. Likely €3,000.
Merchants would be able to receive and process digital euro, but not hold them.
Digital euro holdings would not accrue interest.
Reverse waterfall eliminates the need to store large quantities of digital euro as users would seamlessly link their digital euro account to a payment account with their bank and have funds flow into digital euro.
Bank Claim: Digital Euro Facilitates Bank Run on a Single Bank
BUSTED: It is already the case today that retail customers can transfer deposits to another private bank with a single click or tap, sometimes even in real time, or they can invest in a money market fund or government bond. Moreover, there is no limit on such transfers, while holdings of digital euro would be subject to limits.
Bank Claim: Digital Euro Facilitates Economy Wide Bank Run and Crisis
BUSTED:
-If a limit is applied to digital euro holdings, the ability of customers to withdraw unlimited amounts of cash would be much more relevant from the banks' perspective.
-Even in severe banking crises, many banks are still considered safe, as shown in the 2008 Great Financial Crisis, and in the recent US regional banks crisis, where banks benefitted from inflows.
-Bank runs have generally not been triggered by large numbers of retail customers withdrawing small deposits but by incidents in the wholesale markets or the withdrawal of very large individual amounts.
Bank Claim: Banks will lose deposits as a source of re-financing in the long term.
BUSTED: The combination of a holding limit, zero remuneration, the reverse waterfall, and the absence of corporate holdings of digital euro would imply rather low overall levels of digital euro holdings. What matters is the total amount of central bank money in circulation, and focusing on the digital euro alone ignores banknotes in circulation, which would be misleading as both are identical in how they affect the financial accounts of the economy.
👊STRAIGHT TALK👊
The gloves are off, and the ECB executives who wrote this article shatter the normal clubby atmosphere between commercial and central bankers.
The central bankers have done everything possible to design a digital euro that will have minimal impact on commercial banks.
They have ceded to all bank demands and have “depowered” the digital euro to the point where many CBDC advocates, myself included, feel they have gone too far.
Yet despite the ECB’s concessions, banks are still attacking the digital euro with the goal of preserving rich revenues from payments.
With this article, we see the ECB saying “ENOUGH,” it is a clear signal for commercial banks to stop their absurd attacks and fall in line.
Do you think it will work?
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