Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Column: E-euro starts to take shape

EconomyApr 16, 2021 04:55AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. FILE PHOTO: A picture illustration of euro banknotes

By Mike Dolan

LONDON (Reuters) - The promised digital euro started to take shape this week and signals from Frankfurt may offer some relief to nervy commercial banks worried about being sidelined by the latest disrupter.

With the "hands off" pandemic accelerating the demise of physical cash, and private-sector crypto and stablecoins threatening to invade the space, the pledge last year of a digital euro within five years came before the European Central Bank knew what exactly it would be or how it would function.

As nearly every central bank working on digital legal tender suggesting a different model or system, the debate over design has ranged widely over the past 6 months - from digital tokens to a direct central bank accounts or something in between.

But responses from the ECB's public consultation, released this week, have gone some way to narrowing the options discussed - with the feedback showing a preference for privacy, though not anonymity, and a role for the existing banking system.

Although this was just one survey, and the ECB laced it with caveats about how unrepresentative the sample was of euro zone citizens, it may give some clues to the direction of travel.

Respondents' heavy stress on privacy and security appears to be coupled with a preference for the digital euro to exist offline, like a token held in smartphones or digital wallets. What's more, they seem to want it to exist alongside rather than instead of physical cash and to operate in conjunction with the existing banking system.

That addresses one of the biggest financial stability concerns plaguing plans for digital currencies, already being trialled by the People's Bank of China and which the U.S. Federal Reserve has called a "high priority project".

Many fear that if a digital currency is effectively a open-ended deposit account directly with the central bank, then its inherent guarantee will see deposits flee commercial banks, especially in a crisis, and undermine the retail banking system.


To counter that, ECB board member Fabio Panetta has proposed limiting deposits to households only, and to a maximum of 3,000 euros - effectively penalising holdings in excess of that, and accounts held by companies or investors, with deeply negative interest rates.

Almost half this week's ECB survey agreed with either that kind of tiered remuneration or strict limits on digital euros in circulation. But the ECB stressed that those polled had offered no viable solution to the conundrum of how you tier remuneration for offline tokens.

If further surveys suggest such a preference for an offline token that "should be integrated into existing banking and payment solutions", as the ECB's readout concludes, then it may be a less disruptive development than many first feared.

In a paper released just before the ECB survey this week, U.S. bank Morgan Stanley (NYSE:MS) became the latest financial firm to release its take on the coming Central Bank Digital Currencies.

Its best guess is that CBDCs will be aimed at households, accessible through financial intermediaries and run on a centralised ledger system controlled by monetary authorities.

Morgan Stanley cautioned, however, that while banks were likely to remain important as financial intermediaries, they would still probably face stiffer "competitive pressures".

These include competition for bank deposits up to CBDC holding limits, the arrival of new entrants into a digital payments industry spurred on by easy online use of CBDCs, and banks getting less access to customer spending data.

"While central banks' efforts at introducing CBDC are not intended to disrupt the banking system, it will likely have unintended disruptive effects," Morgan Stanley concluded.

For macro investors, the design will be critical for assessing potential foreign exchange spillovers from possibly unlimited overseas holdings of digital euros or dollars.

It will also affect CBDCs are used by policymakers to manage economies in future - injecting cash directly to households in a crisis, for example, or to tax, apply negative interest rates and even specify certain spending.

"This will be the helicopter money of the future," said Cesar Perez Ruiz, Chief Investment Officer at Pictet Wealth Management, adding it fits Pictet's long-term theme of "big government" ahead and all that entails.

"It's no longer just a question of the value of money, but a question of what is money," Ruiz said.

(by Mike Dolan, Twitter: @reutersMikeD; Editing by Catherine Evans)

Column: E-euro starts to take shape

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email