Q24: Would the digital euro pose a threat to financial stability by disintermediating banks?

The European Central Bank answers:

Our financial system – with the banking system at its centre – functions well, and the Eurosystem wants to preserve the key role banks play in ensuring the efficient provision of credit to the economy.

The ECB has made the following design choices to minimise any potential risks the digital euro might pose to the financial system.

Users would only be able to hold a limited amount of digital euro in their account. This would prevent excessive outflows of bank deposits and help preserve the stability of our financial system, even in times of crisis.

Linking their digital euro wallet to a bank account would allow users to make payments above the holding limit and cover any shortfall instantly without having to pre-fund their digital euro wallet (assuming sufficient funds are available in the linked account).

As with cash in your wallet, no interest would be paid on digital euro holdings.

The ECB prepared a technical analysis to estimate the potential effects of various hypothetical holding limits, following a request that emerged during legislative negotiations. This analysis confirmed that using the digital euro for day-to-day payments would not harm financial stability and that – given the different hypothetical holding limits of up to €3,000 per person that the co-legislators asked to be tested – the impact of the digital euro would not harm financial stability within the euro area, even under a highly unlikely and extremely conservative crisis scenario.

We answer them:

In contrast to the analysis done by the ECB, independent studies have come to different conclusions showing that especially highly impacted small banks would still experience significant threats to their financial stability: Loosing up to 20% of the deposit base or 9% of total bank liabilities according to [1], or 15% of total bank liabilities according to [2]. While customers could withdraw similar amounts in physical cash today, the digital euro will allow them to do so faster and from anywhere in the world, limiting the time-frame the banking system has to react to a bank run.

Many banks are only profitable because of revenue from account and payment fees [3]. If gratis digital euro accounts and transactions were to deprive them of this revenue, they will be forced to adjust their business models to make up for this loss of profits (KF4). One such business model might be that banks could earn interest from the central bank on the digital euros under their management via the ECB’s deposit facility, costing the ECB significant interest on all digital euros in circulation [4].

Apart from that, the offline functionality of the digital euro poses another threat to the financial stability of the euro (KF2): As soon as someone overcomes the double-spending restrictions (cf. Q7) they will effectively be able to create digital euros at an unlimited scale. To prevent devaluation of the (digital) euro in such a case, the offline functionality would need to be completely disabled (assuming that would be even possible without Internet connection) until the cause is fixed, and all affected hardware is replaced.

H. Næss-Schmidt, C. Zienau, R. Cipriano, and J. Brink, Effects of a digital euro on financial stability and consumer welfare. Copenhagen Economics, 2023.
B. Meller and O. Soons, Know your (holding) limits: CBDC, financial stability and central bank reliance, ECB Occasional Paper, no. 326, p. 46, 2023.
R. DeYoung, T. Rice, et al., How do banks make money? The fallacies of fee income, Economic Perspectives-Federal Reserve Bank of Chicago, vol. 28, no. 4, p. 34, 2004.
M. Gütschow and B. Lucke, The proposed design of the digital euro: A critical analysis, Digital Finance, vol. 8, no. 1, p. 7, 2025. doi:10.1007/s42521-025-00171-2