MYTH BUSTING: No the Digital Euro Won't Reduce The EU's GDP
Once again, bank "shills" predict a CBDC apocalypse!
A Copenhagen Foundation report commissioned by the European Banking Federation makes the false claim that the digital euro will “permanently” reduce the EU’s GDP by anywhere between 0.12 to 0.34%.
What is sad is that this bank-sponsored paper joins last year’s paper by the American Bankers Association in attempting to use unrealistic worst case scenarios to stoke fear and stifle CBDC innovation.
Don’t fall for it!
Claim:
The paper makes the case that all users will hold the digital euro up to the maximum holding limit of €3000 maximum holding limit. It then uses this “worst case” scenario to claim a severe impact on bank reserves that triggers “permanent” GDP impairment. The ABA pulled the same trick in its report last year.
How Digital Wallets REALLY Work:
What the report authors do not understand is how digital wallets work. As a daily user of WeChat and Alipay, let me explain it to them.
WeChat wallets are a good analogy for CBDCs as each digital wallet connects two separate accounts: a bank account and a WeChat Wallet balance, which is analogous to a CBDC balance.
Like the digital euro, the WeChat wallet balance earns no interest (non-remunerative) and has a maximum holding limit for personal accounts.
Myth Busted:
The report's authors fail to consider that CBDC and WeChat have instantaneous, no friction transfer between bank storage of money and the WeChat or CBDC balance!
This means that a RATIONAL WeChat user keeps their money in the bank, earning interest and not in their WeChat balance. This is why I, and most other WeChat users, keep very little in their WeChat balance, just as CBDC users will keep small CBDC balances.
There is another reason for RATIONAL WeChat and CBDC users to keep low balances. If you lose your phone and your money is in the bank, you won’t have to wait to recover or, in some cases, lose your money.
So the worst case scenario the report suggests is simply fear mongering and does not align with actual and verifiable digital wallet use!
Stockholm Syndrome for banks?
With 1.4% of the EU’s GDP as the cost of payment services in 2023, banks are society’s captors. I think that spending 1.4% of GDP on payments is a problem worthy of solving. It’s amusing that the EU Banking Federation report doesn’t seem to think so!
Banks are their own worst enemy
The report concludes: “Our overall evaluation is that it is not clear what existing or emerging financial sector challenges the digital euro will solve.”
So let’s make this crystal clear. The EU banking system collects 1.4% of the EU GDP in fees annually but thinks that this is just fine and not a “challenge to solve.”
Comparing worst case scenarios, the EU Banking Federation’s .34% GDP loss would be small compared to the 1.4% gain if in a “worst case” all payments were free as with CBDC!
I do not have words strong enough to condemn the banks and bank lobbying groups for promoting such blatantly flawed research that seeks to preserve a status quo that serves bank interests.
Thoughts?
Author’s note:
The report authors argue that this worst case may occur during a time of bank stress as with the Silicon Valley Bank collapse. This is bunk because SVB showed it was large corporate transfers that busted the bank not personal transfers which would be limited to €3000. These corporate transfers occured without CBDC!
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