A digital euro could suck away 8 percent of eurozone banks’ customer deposits, analysts at Morgan Stanley have estimated, although the share may be far higher in some of the smaller countries in the 19-nation bloc, Reuters reports.
The European Central Bank is expected to speed up work on a digital euro in the coming months and although a formal launch could be a few years away, economists are looking at potential implications.
With 90 percent of the world’s central banks now working on digital currencies, a key question is whether they will cannibalise the money currently held in high street bank accounts.
Morgan Stanley’s analysts said their estimates were based on “bear case” scenario where all euro area citizens above the age of 15 transferred 3,000 euros (US$3,637) into what would effectively be an ECB-controlled ‘digital wallet’.policymakers and market experts.
“This could theoretically reduce euro area total deposits, defined as households’ and non financial corporations’ deposits, by 873 billion euros, or 8 percent,” Morgan Stanley said.
The average loan-to-deposit ratio (LDR) of eurozone banks would increase to 105 percent from 97 percent, although banks in aggregate would “hardly notice” it as the LDR was at 105 percent in late 2019 before the coronavirus pushed up savings.
However, banks in smaller countries, in particular Latvia, Lithuania, Estonia, Slovakia, Slovenia and Greece, could theoretically be impacted harder than the average.
Converting 3,000 euros of deposits in those countries would be equivalent to converting 17 percent to 30 percent of total deposits and 22 percent to 51 percent of total household deposits.