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The European Central Bank (ECB) is facing calls to clarify its position on the potential financial impact of the digital euro on European banks, after its supervisory chief claimed that lenders would benefit from the new central bank digital currency (CBDC).
Auke Zijlstra, a Dutch member of the European Parliament (MEP), has submitted two written questions to Claudia Buch, chair of the ECB’s Supervisory Board.
He is seeking evidence to support Buch’s assertion, made during a European Parliament committee meeting in March, that the digital euro would be profitable for banks.
In his first question, Zijlstra, a member of the right-wing Party for Freedom, highlights the “clear” risks and costs facing banks, including large-scale deposit outflows, increased cybersecurity investment and public relations campaigns aimed at preventing disintermediation.
The MEP, elected last year, notes that the ECB itself has acknowledged these risks, particularly in relation to the need for “holder limits”, which are caps on individual digital euro holdings that are designed to mitigate financial instability.
For example, according to the European Banking Federation (EBF), a holder limit of €3,000 could trigger the withdrawal of up to €739bn in bank deposits across the euro area, equivalent to 10 percent of the household deposit base and 3 percent of total bank liabilities.
Zijlstra has asked whether the ECB has conducted any cost-benefit analysis to substantiate Buch’s claim that banks will profit from the digital euro.
In a second question, meanwhile, Zijlstra cites further warnings from national banking associations.
For example, the Italian Banking Association estimates the introduction of the digital euro could cost Italian banks €880m, potentially undermining their ability to invest in other innovations.
In addition, Germany’s National Association of Cooperative Banks (BVR) has warned that under a full €3,000 take-up scenario, less than 8 percent of its members would meet liquidity requirements without seeking alternative funding sources.
The EBF also estimates that such a scenario could impose €20.4bn in annual funding costs on the European banking sector.
Zijlstra is asking the ECB to provide its assessment of the financial risks and costs posed by the digital euro to banks, as well as its response to the figures cited by the industry.
The divisive euro
The jury appears to still be out on the digital euro — despite the ECB’s best efforts, MEPs such as Zijlstra remain unconvinced and seem more persuaded by the industry than by the central bank or the European Commission.
The concerns are not just theoretical. As the details of Zijlstra’s questions show, they are coming from major banking lobbies in large eurozone economies such as Italy and Germany.
This points to growing political pressure from the banking industry via their national representatives.
Given current priorities such as developments, for example the need to finance EU defence mechanisms and build European sovereignty in integral areas — including payments — this could influence how the digital euro is ultimately rolled out.
The fact that Zijlstra is asking whether the ECB has actually calculated net profitability for banks implies that critics feel the central bank has not sufficiently supported its public claims with data.
It is clear that the pressure is on the central bank to create an impact assessment and release it to policymakers and industry stakeholders.
Zijlstra is by no means a significant voice yet in the parliament, and his EU level faction, Patriots for Europe, lacks the traction of more significant factions such as the centre-right European People’s Party and the centre-left Socialists and Democrats alliance.
However, his party has significant support in his home country of the Netherlands, and if these voices at member state level catch on, then it may not bode well for the eventual rollout of the digital euro.
