ECB Criticizes Banks For Focusing On Wrong Issue Regarding CBDC Deposit Flight
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The European Central Bank (ECB) stated that banks are heading in the wrong direction when they worry about the effect of capital outflow from a future digital currency. The ECB stressed that the banks should be more worried about the stablecoins and electronic money institutes because they present a greater danger to the base of deposits.
ECB Intends To Reveal Certain Misconceptions About Digital Euro
The ECB made efforts to unveil some misconceptions concerning the function of a future digital euro. The organization cited that the novel digital money would be strategically designed to maintain the economic role of commercial banks.
It accomplishes this goal by limiting vendors from accumulating digital euros completed at the checkout and putting strict restrictions on individual digital euro holdings. The digital euro would not accrue interest. Andy Haldane, a former Bank of England economist criticized this feature, dubbing it a “stealth tax scandal”.
The ECB cited that Users can effortlessly connect their Digital currency account to a Transaction account with their respective banks, allowing a ‘reverse waterfall’ system. This removes the necessity to fund the digital currency account in advance for online transactions. Any loss would be immediately covered by the connected commercial bank account if it has enough funds.
Despite the mitigation measures explicit inclusion in CBDC design, bank-sponsored, think tanks, scholars, and banking associations have continued to publish studies. Highlighting the risks of removing finances from transactions, via the potential introduction of CBDCs overall and particularly a digital euro.
Challenges Involved in the Digital Currency Landscape
The central bank suggests that banks are misguided when they depend on studies that overtook the digital euro outlined design features. Instead, the banks should focus their attention on how new participants could present a greater risk to bank funding rather than CBDCs.
ECB expressed that e-money institutions, Stablecoins, and other narrow bank constructs, some supported by leading tech firms with vast user bases, disregard the role of banks in the economy.
Moreover, non-banks lack a clear incentive to restrict the range of services they offer or the use of their stablecoins, which in adoption could become significant.
The European Central Bank (ECB) is a central bank designed to manage the monetary policy of the European Union (EU) member nations that have embraced the euro currency. This union of currencies is known as the eurozone and comprises 19 nations currently.
