European Central Bank: The digital euro could trigger up to 700 billion euros in deposit outflows during a bank run

ChainCatcher news, according to a report by Reuters, the European Central Bank's simulation study on Friday showed that if commercial banks experience a run, the digital euro could lead to a loss of €700 billion in deposits, putting about a dozen eurozone banks in liquidity trouble.

The study was commissioned by European lawmakers to assess the risks of the digital euro to the banking sector. The European Central Bank views digital currency as an alternative to the US-dominated payment methods, but bankers and some lawmakers are concerned that it could drain bank funds. The research found that if a personal holding limit of €3,000 for the digital euro is set, depositors would withdraw €699 billion, equivalent to 8.2% of retail demand deposits, with smaller institutions being more affected.

In an extremely unlikely scenario, 13 out of 2,025 banks would exhaust their statutory cash buffers. MEP Markus Ferber believes that small banks may face difficulties due to excessively high holding limits and need to exercise caution. The European Central Bank stated that the digital euro might be overestimated, as it does not consider multiple account situations.

In a normal operating scenario, just over €100 billion would flow out, and holding limits could ensure financial stability. The European Central Bank also simulated scenarios with personal holding limits of €500, €1,000, and €2,000, resulting in even lower estimates of fund outflows.

The European Central Bank also stated: "The analysis confirms that holding limits can effectively restrict the outflow of bank deposits to a level that ensures the stability of the financial system and supports the proper formulation and implementation of monetary policy."