One of the largest investment banks in the United States, Morgan Stanley, has estimated the possible changes in the deposits of banks in the eurozone in case the so-called digital euro is widely adopted.
June 16, 2021, | AtoZ Markets- According to some analysts, a digital currency of the central bank of the European Union (CBDC) could absorb 8% of the deposits of the clients of the banks of the eurozone.
With 90% of the world’s central banks now working on digital currencies, a key question is whether they will cannibalize 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 ($ 3,637) into what would effectively be an ECB-controlled ‘digital wallet’.
This calculation is done because the amount has been mentioned as a theoretical maximum or cap by some ECB 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%,” Morgan Stanley said.
What Morgan Stanley Said
The bank has mentioned that the average loan-to-deposit ratio (LDR) of euro zone banks would rise to 105% from 97%, although banks as a whole would “hardly notice it” as the LDR was at 105% at the end of 2019 before the coronavirus increased savings.
However, the entity has highlighted that the banks of smaller countries, in particular Latvia, Lithuania, Estonia, Slovakia, Slovenia and Greece, could theoretically be more affected than the average.
He also mentioned in his statement that converting 3,000 euros of deposits in those countries would be equivalent to converting from 17% to 30% of total deposits and from 22% to 51% of total household deposits.
The ECB Will Decide on the Digital Euro This Year
It is no secret that the ECB is already working on managing its own digital currency, or a so-called digital euro.
European Central Bank President Christine Lagarde said the ECB’s Governing Council will make a decision on whether to move forward with a digital currency by mid-2021, and that the process of rolling it out should be completed within four years.
She made the comments during an interview with Bloomberg Television’s Francine Lacqua.
Otherwise, a Bank of England paper last week modelled a scenario under which a fifth of money currently held as retail deposits with British banks was held instead in new forms of digital currency or a CBDC.
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