June 20, 2021

75% of banks believe that the digital euro will compromise their business model




The European Central Bank It is working on the introduction of the digital euro and this next summer it hopes to make public the final schedule of the project, but banks are watching the process with suspicion. According to a survey recently published by the research institute of the Goethe University of Frankfurt, the Center for Financial Studies (CFS), most of the specialists and managers consulted remain undecided on how to classify the project.

Almost three-quarters of the banks that participated in the survey express concern about the impact that the digital euro will have on their business model, especially if the ECB allow businesses and households to directly access central bank digital money and warn that the new currency would cause serious imbalances. “The survey shows that many market participants still do not have a clear idea of ​​whether or not a digital euro is needed, or how it should be designed,” he explains. Volker Brühl, CFS, which calls for the financial industry to actively participate in the project. “75% of financial agents fear that their business model will be compromised,” he continues, “and most believe that it will be more difficult for them to finance bank capital once digital currency is introduced.”

51% of those surveyed in this work support the introduction of the digital euro, while 42% were firmly against it. 35% did not even claim that the digital currency was a “necessary” project, while project risk was rated moderate by 43% of managers and high by 31%. 57% fear that the program will reduce the effectiveness of monetary policy measures, while 25% said that this is conceivable. Brühl stresses that the survey clearly shows that many market players still do not have a clear vision of the digital euro or a concrete idea about how it should be specifically designed. Consider that the ECB It should, therefore, involve more financial institutions and the banking and insurance sector in this process.

The ECB has carried out its own surveys and one of them, presented in April, already showed certain concerns of banks, such as data protection (43% of those consulted), security (18%), use in the euro area (11% ), legal assistance (9%) and offline application (8%). But the sector is also aware that it is not an option to be left out of the global digitization of currencies. Hubertus Väth, CEO of Frankfurt Main Finance, remember that Europe is dangerously behind in terms of financial digitization. “The digital euro can accelerate this recovery process and will not be subject to the extreme exchange rate fluctuations that characterize cryptocurrencies, which makes them more predictable for both companies and individuals,” he says.

Nobody escapes that hehe private initiatives of digital currencies is contesting monetary sovereignty from the ECB and that central banks must react to that reality. But it is also obvious that one of the premises for using digital currencies such as Bitcoin is the disappearance of intermediaries. If the ECB ensures the direct and more efficient distribution of money, especially its stimuli, offering credit and making the flow of capital more accessible, the role of banks will lose much value.

Payment methods such as credit or debit cards are also in danger, which will become obsolete in the face of new models of digital wallets. In addition, central bank digital currencies may end up replacing cash, as they allow governments to track much more effectively, surely in exchange for violating users’ privacy. In this regard there is not even a precise legislation yet. For this reason, the ECB it is considering that the digital euro is based on blockchain technology or in some other DLT (Distributed Ledger Technology). The latter could reduce its compliance costs by 30-50% by 2025, according to an Accenture study. The little we know so far about the project’s design includes that the digital euro would have two concepts, one of large volume, which is already operating between the ECB and banks, and another of small volume, to be used by citizens in their purchases and that it should be backed by a certain patrimony.

The ECB, in any case, is by no means a pioneer. The United States, China and Japan are already in the testing phase. The ECB’s idea is for the European Parliament to approve the digital eurosystem this June and for the experiment to begin to take shape in 2025.

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