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Will banks benefit from the digital euro? – Digital Directors

In a world where digital assets are starting to gain their weight and where we have even learned that the world’s first manager, BlackRock, has launched a private bitcoin cash trust for US clients, it is not surprising that central banks and traditional entities. to jump on the bandwagon of this technology.

In fact, Sam Theodore, senior analyst at Scope Ratings, points out that the central banks of countries with developed banking systems have uniformly said that their CBDC initiatives, the digital currencies of the central banks, will be done in close cooperation with their banks.

In fact, it clarifies that, in the case of Europe, it is doubtful that the digital euro which is already being discussed so much and is being tested by the EU, it has some use if it is not closely related to banking activities.

The essential development of the digital euro, according to the ECB

“The messages from the European Central Bank (ECB) related to deEUR are becoming less hypothetical and more convincing, especially since the case is becoming clearer,” said Theodore.

And the expert is based on the fact that the body, in a recent publication of the ECB ‘The main objectives of the digital euro’, mentions three risks of inaction in this opening towards its regulated digital currency: the possibility that public money it loses its role as a monetary anchor (mainly due to a reduction in the use of money); the fact that the cryptocurrencies private companies cannot guarantee one-to-one conversion with central bank money and are at risk of a downturn; and finally, the worrying issue that private sector digital payment solutions (crypto or otherwise) are dominated by non-European technology players, which could pose material threats to European monetary sovereignty, especially in the event of a crisis.

The relationship between the digital euro and traditional banking

The expert of the rating agency highlights that so far the banks have hardly expressed data or opinions in conversations with investors and analysts, who tend to ignore the issue”, but he adds that as the project progresses forward dEUR, which will reach. pilot phase sometime next year, banks will have to tackle the issue directly when dealing with investors.

“One of the main concerns of banks, expressed so far by the European Banking Federation (EBF) and the Institute of International Finance (IIF), is the impact of deEUR on financial stability in general ( mainly related to bank financing). ) and in their profitability”, he says.

And he adds: “Specifically, there is uncertainty due to the possibility that bank depositors will change their funds to deEUR in the event of a real or apparent crisis, which contributes to the lack of funding for banks”.

The expert explains that to face the headwind at digital eurothe ECB is considering, firstly, imposing limits on deEUR holdings by individuals and companies and, secondly, discouraging the use of deEUR holdings as an investment by applying rewards above a certain threshold, and larger holdings subject to more punitive rates.

“I think the most pragmatic way to look at the deEUR is simply to replace cash; no more no less. Within a generation at most, banknotes and coins will hardly be used”, explains the expert, who explains: “By gradually replacing cash with CBDC, the ECB and other central banks ban on depositing money: most 100 euro banknotes are kept instead. transferring through banks, for example. This will further enhance financial inclusion. As the dEUR becomes more widely used, cash will be as rare and obsolete as paper checks today.”

Therefore, Theodore sees clear benefits from this regulated digital currency for banks, such as avoiding the uncertainties caused by the widespread use of constables and others. cryptocurrencies in payments and financial transfers.

“Banks can raise concerns about the potential impact of CBDCs on funding, but they must recognize that such concerns would increase significantly if private cryptocurrencies played that role, in the absence of CBDCs. The alternative to CBDCs is to keep digital money on the sidelines. As unattractive as it may be for banks, the alternative is to accommodate the growing role of stables and their crypto-equivalents private in the usual payments”, says the expert.

And he says the deUR, with limits on shares and returns, is unlikely to even partially replace bank deposits.

CBDC gains ground in the world

As the rating agency pointed out, according to the latest statistics, 10 countries have already launched national CBDCs, such as Nigeria, Jamaica, the Bahamas and seven Eastern Caribbean States.

“Fifteen countries have a CBDC in a pre-launch pilot phase, including China, Russia and, in the EU alone, Sweden. The euro area is in the next phase of CBDC development, along with Switzerland, Japan, Canada, India, Australia, Brazil and other countries. The United States, the United Kingdom, Norway, and other countries are still a step behind, in the research-pre-development stage. Finally, some countries, including Denmark, are not actively pursuing CBDC initiatives,” says Sam Theodore.

News updated: 08-19-2022 10:45

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