Digital Euro Could Drain Up to 700b Euros of Deposits in Bank Run, Ecb Says

it's a personal account in the ECB, it's insured by the ECB's digital printer and interest will likely be whatever the ECB decides; it'll need to pick a value that doesn't blow up commercial banks as the article says, and even if does and chooses a very low deposit limit, it'll still cause stress.

> The study, requested by European legislators, was aimed at evaluating the risks that a digital currency, essentially an electronic wallet guaranteed by the ECB, would pose to the banking sector under different scenarios, including a hypothetical "flight to safety".

Paper and coins euro doesn't come with interest, I don't see why digital would. That'd still be the job of a bank.

Good thing about central bank holding it is that you do not need insurance. It cannot fail. All the currency that exist exists there. It is impossible for central bank to fail to fulfil their obligations or they just print more.

Bank failures comes from banks using deposits. Which can result in banks assets to be lower than deposits, say if interest rates have recently rised. Central banks should be instead fully backed.

I see no reason not to have some guide rate being paid... Or in worst case taken away. ECB set the rate to negative at one point... So that might happen again. So rate they pay might end up being negative meaning they charge you...

> dissuade the public from digital currency.

Did you read the article?

The reason to move to ECB would be for ECB garanteed deposits, which many could find safer than their local bank

> Flight to safety would see 13 banks out of cash

Yes and no. If any bank really imposed a 3k Euro withdrawal limit, every rational* depositor would instantaneously pull 3k Euros out of that bank. In whatever form they could pull out fastest. (Newly-created "digital Euros" would not be my first choice in that chaotic situation.)

On the other hand, sure, it sounds scary. Which is a little strange. It's not obvious that establishing a financial "safe haven" should automatically inspire fear. To offset this hypothetical band run, they could beef up whatever deposit insurance EU bank depositors have. Or if there is solid EU-wide deposit insurance already then ... of course then we could ask an obvious follow-up question about the premise of the article.

*By "rational" here I mean to imply some degree of real-world financial literacy.

No. Private banking refers to for banking, investment and other financial services provided by banks and financial institutions primarily serving high-net-worth individuals (HNWIs) – those with very high income or substantial assets.

This is ECB giving normal people direct access to ECB money past banking.

It's about people being allowed to have accounts with the ECB rather than a bank, in practice. Euros are, of course, already basically 'digital'.

every euro account ultimately ends up on the ECB's balance sheet, so why keep middlemen?

If they give money as some sort of relief they could specify what it can be used on: groceries, education etc

I think it would help create fintech local alternatives to Visa and Mastercard, if it gets feature parity. It could be cool and, to be honest, this market could use a bit of a shakeup.

I haven't looked into it much, but I assume the point is that it avoids the SWIFT system.

I think there are significant differences between the two events, with the major similarity being “there is a large change in regulation regarding how ordinary people handle money.”

In 1933 the major goal was to force ordinary citizens to trade their gold for cash, and then inflate the cash. That is why it became legal to hold gold again in 1975, the dollar value became disconnected from gold.

In modern Europe I don’t see the same rug-pull and a digital euro will continue to be just as valuable as a physical one. There are other valid concerns for going digital-only with currency.

Matt is that you?

I think a driver is the idea of a European payment system. Why this should be "digital Euros" I don't clearly understand. We don't have digital USD, and we have indigenous payment systems in the US.

Yes, everything is digital, but what changes is how sophisticated the ledger is and who controls it. The digital euro is basically a cryptocurrency, but centrally controlled. It has the benefits of transactions just being an API request. The bank would basically become just one big wallet (or the securer of lots of wallets) and would no longer have to deal with doing the transfers of money and building the bookkeeping, the same way a crypto exchange doesn't send bitcoin from one wallet to another, the blockchain is the one responsible for the transfer, the exchange is only the holder of the wallet and the one that builds the transfer parameters.

As it is today, things are much more decentralized, and each bank is responsible for keeping a record of its own books, and all the protocols that automate transfers still require the bank to be responsible for all that information. Sending money from one bank to another required both banks to have an agreement with each other and a protocol regarding how they would exchange money between them, or to go through one or multiple banks, until there is a path from the original bank to the receiving one. Obviously, this was already improved by having the ECB and enforcing cross-bank mechanisms, like IBAN, but when you fundamentally change the currency to be a cryptocurrency, all of this comes embedded in the currency itself.

There's obviously a downside, which is that everything, even the smallest of purchases, is now fully trackable on a much bigger scale. The fact that money is no longer just fungible money that you can exchange at any time, but programmable money, is also a problem. You could, for example, program some money to be usable in certain ways, have money that expires, etc. Currently, if you have 1€, you have 1€, and you know that you can spend that in any place that accepts euros, and that will remain so as long as people accept euros. But now, you could have 1€, but that 1€ can only be spent in certain places (let's say restaurants), or you could have 1€ that would expire in a year if you don't spend it. That fundamentally changes the relation with money and how people quantify money, and no one really knows what the repercussions would be.

Yes. This is really more about having the option to transact without banks being involved at all.

Sure, although non-governmental ledger systems have the most of the same underlying problems. They're not optimized for government control, but they enable it. Only one really big exception: I can refuse to use them.