Digital Euro Needs Curbs to Halt Lending Crunch, ECB Study Finds

The economic evidence appears to support calls to cap how much central bank digital currency people can hold, to stop them fleeing banks all together, the study suggests.

AccessTimeIconJul 28, 2022 at 11:06 a.m. UTC
Updated May 11, 2023 at 6:18 p.m. UTC

Europeans would need to have access to a new digital euro capped to prevent significant outflow from conventional banks, according to a study published by the European Central Bank (ECB) on Thursday.

The findings support a suggestion by ECB’s Fabio Panetta that accounts for the central bank digital currency (CBDC) would be limited to 3,000 euros (US$3,048) per person, to ensure there’s still enough money in conventional finance to support lending.

Inspired by the success of bitcoin (BTC) and private initiatives, like the now-aborted Facebook-backed libra, many central banks around the world are mulling whether to issue a digital fiat currency alongside banknotes and coins. However, cautious European Union officials want to figure out the impact of CBDCs before they take any final decision.

“Advanced economies have no experience with CBDCs and, hence, there is no available data on which empirical analysis can be performed,” the study said, offering “novel empirical evidence on the impact of digital euro news on bank stock prices and bank lending behavior.”

The team of economists, including ECB Director-General Frank Smets, looked at the impact different kinds of digital euro might have on lending – based, in part, on how previous public statements about the CBDC design affected bank stocks.

The optimum amount of digital euros to have in circulation would be between 15% and 45% of quarterly real gross domestic product (GDP), the economists found. Because the eurozone's quarterly GDP is about 3 trillion euros, Panetta’s suggestion of a 3,000 euro cap would sit pretty much in the middle of that range, at 34%.

If left unchecked, a digital euro could prove too popular, the authors warned. “Under no quantity limits and no remuneration, the amount of CBDC in circulation would be larger (i.e., of roughly 65% of quarterly real GDP) and the steady state effects on banks’ valuations and lending would be comparatively more sizable,” the study said.

Panetta, a member of the ECB’s executive board, has suggested that a digital euro could be issued within four years – but first policymakers must grapple with issues like how to assure user privacy.


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Jack Schickler is a CoinDesk reporter focused on crypto regulations, based in Brussels, Belgium. He doesn’t own any crypto.

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