Home News Digital euro could drain 8% of bank deposits, Morgan Stanley says

Digital euro could drain 8% of bank deposits, Morgan Stanley says


American bank Morgan Stanley simulated a bearish scenario for bank deposits due to the introduction of the digital euro. In their opinion, the new financial instrument could harm traditional financial institutions.

According to analysts of the American investment bank Morgan Stanley, if the digital euro widely introduced, it could “absorb” about 8% (€ 873 billion) of funds from banks operating in the European Union.

At the same time, Morgan Stanley analysts believe that this percentage can be much higher in small countries. Such as Latvia, Lithuania, Estonia, Slovakia, Slovenia and Greece. In these countries, the outflow of funds from banks can amount to 22%-51% of retail deposits. And 17%-30% of total deposits.

Such assessments contained in the pessimistic scenario. It admits that all Eurozone citizens aged 15 and over will transfer € 3,000 from deposits to CBDC. A similar limit as insurance against destabilization of the situation in the banking sector previously named a member of the governing board of the Central Bank Fabio Panetta.

However, real estimates may not be so pessimistic. As local bank customers are unlikely to convert most of their savings to the digital euro. For example, if depositors don’t want to convert more than 12% of deposits (€ 3,000 for the eurozone), then the impact on total bank deposits will not be higher than 10%, even in Greece, analysts emphasize.

Banks around the world are worried

Morgan Stanley also noted that the adoption of the CBDC will increase the loan-to-deposit ratio (LDR). From an average of 97% to 105%.

This will increase the likelihood of a liquidity shortage situation in the event of active demand from borrowers. However, the launch of the digital euro will not lead to systemic consequences. Since in the era of the pandemic, the LDR has already risen to these values, they stressed.

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.

However, it is noted that as a result of a possible outflow, commercial banks will only have to adapt their balance sheets in order to maintain their current liquidity ratios. Therefore they have nothing to worry about.

In turn, commercial banks around the world have also expressed concern that central banks will gain more power over the money supply by adopting CBDCs.

In addition, if users begin to use the digital euro for day-to-day expenses and payments, it could drain banking resources and limit the ability of banks to lend.

At the same time, earlier ECB warned about the problems of monetary regulators in the absence of their own CBDCs.

Developing a digital euro could take four years

According to the head of the ECB Christine Lagarde, the European Union will decide on the issue of the digital euro by mid-2021. At the same time, the development of a digital currency can take up to four years. Lagarde argues that such a long development associated with fundamental consequences associated with the digital version of the currency. In addition, in April, the ECB published the results of a public discussion on the launch of the digital euro.

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