The European Central Bank says banks are "barking up the wrong tree" when they fret over the impact of deposit flight from a future digital euro, arguing instead that stablecoins and electronic money institutions pose more of a threat to the deposit base.
In a blog post, the ECB is at pains to debunk a number of myths about the role of a future digital euro, insisting that the new digital currency would be designed from the outset to preserve the economic function of commercial banks.
It achieves this by placing strict limits on individual digital euro holdings and restricting merchants from hoarding digital euros processed at the checkout. Nor would the digital euro accrue interest - a feature which former Bank of England economist Andy Haldane has called out as "stealth tax scandal".
Users would be able to seamlessly link their digital euro account to a payment account with their bank, says the ECB, enabling a 'reverse waterfall' mechanism. This eliminates the need to pre-fund the digital euro account for online payments, as any shortfall would be covered instantly from the linked commercial bank account, provided it has sufficient funds available.
Yet, despite the explicit inclusion of mitigation measures in CBDC design, banking associations, bank-sponsored think tanks and scholars have continued to publish studies emphasising the risks associated with eliminating financial intermediaries from transactions through the potential issuance of CBDCs in general and of a digital euro in particular.
The central bank says "banks are barking up the wrong tree when they rely on studies that overlook the outlined design features of a digital euro", and instead should focus their attention on how new players might pose a greater risk to bank funding than CBDCs.
"Stablecoins, e-money institutions and other narrow bank constructs, some sponsored by big tech companies with huge customer bases, do not care about the role of banks in the economy," states the ECB. "Non-banks have no obvious incentive to limit the use of their stablecoins or the services they offer, and the use of stablecoins could become significant."