In the latest report from the European Central Bank, it is stated that the digital euro will replace part of the banknotes currently in circulation, fundamentally changing how Europeans use money. This will also impact bank deposits.
While the digital euro, a project aimed at implementing the European Central Bank’s (ECB) central bank digital currency (CBDC), has not yet been approved, the ECB is already studying its impact on the current asset structure, including banknotes and bank deposits in the eurozone.
According to the bank’s estimates, the digital euro could replace 5 out of every 10 euros issued in the form of physical banknotes removed from circulation.
Similarly, the same study predicts that out of every 10 issued digital euros, 3 will be deducted from bank deposits.
The overall impact of the digital euro has been studied in three different scenarios, depending on the acceptance and responsiveness of citizens.
If the popularity of banknotes remains low, they will be replaced by 15 billion euros. If the popularity of banknotes reaches a high level, 125 trillion euros will be removed from the market.
Finally, if implementation reaches the highest level, the bank predicts that the digital euro will replace 256 billion euros in banknotes.
However, even in the most favorable usage forecast, the digital euro will still be used minimally, as over 1.56 trillion euros are currently in banknotes.
Unlike the United States, which recently opposed the issuance of a dollar CBDC, Europe is promoting the release of a digital euro to counter the growing relevance of dollar stablecoins and other cryptocurrencies.
In January, ECB board member Piero Cipollone stated that the digital euro would serve as a temporary measure to promote these cashless solutions. “This is why we need a digital euro,” he emphasized.
The ECB’s statement in this report sounds like an overt threat. The more popular cash becomes, the more we will withdraw it.
