According to analysts of the American investment bank Morgan Stanley, if the digital euro is widely introduced, it can “absorb” about 8% of funds from banks operating in the European Union.
The researchers’ estimates are based on a scenario in which all Eurozone citizens over 15 years old could theoretically deposit € 3,000 (about $ 3,637) into an electronic digital euro wallet controlled by the European Central Bank (ECB). This could reduce the total number of bank deposits provided by commercial banks to various organizations by 8% (€ 873 billion).
Morgan Stanley analysts believe that this percentage could be much higher in smaller countries such as Latvia, Lithuania, Estonia, Slovakia, Slovenia and Greece. In these countries, the outflow of funds from banks may amount to 22% -51% of retail deposits and 17% -30% of total deposits.
In addition, the transition to the digital euro could increase the average loan-to-deposit ratio (LDR) for banks operating in the European Union. This will increase the likelihood that banks will run out of liquidity to meet unforeseen financial needs. According to analysts, the average LDR will grow from 97% to 105%, however, banks may not notice this “side effect”, since at the end of 2019, before the outbreak of the pandemic, their LDR rose to 105%.
Like many central banks, the ECB is studying the implications of the government’s digital currency, fearing that it could pose a threat to commercial banks. If users start using the digital euro for day-to-day expenses and payments, it could drain banking resources and limit the ability of banks to lend.
This spring, ECB President Christine Lagarde announced that the digital euro could be launched within the next four years. In addition, in April, the ECB published the results of a public discussion on the launch of the digital euro.
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