- Deputy Governor of the Bank of Spain, Margarita Delgado, emphasizes the need to protect traditional banking models in the rollout of a digital euro.
- While some academics argue that CBDCs could replace banks as deposit takers to stabilize the system, Delgado outlines three strategies to minimize disruption to banks.
Digital Euro: A Delicate Balancing Act Between Innovation and Stability
In an era where Central Bank Digital Currencies (CBDCs) are evolving from academic dialogues to functional prototypes, the Deputy Governor of the Bank of Spain, Margarita Delgado, gave a compelling speech about the intricacies of introducing a digital euro. Amidst a landscape of competing academic viewpoints and the volatile economic climate, Delgado delineated three pillars that aim to buttress traditional banking in the advent of this digital transformation.
The Three Pillars for Protecting Traditional Banking
- Safeguarding Revenue Streams: Delgado stressed the significance of not upsetting the banking sector’s core business model, especially regarding payment services. For the uninitiated, ‘payments’ accounted for a staggering 40% of global bank revenues in 2021, exclusive of investment banking, according to McKinsey & Co. Since the digital euro primarily aims at the consumer sector, which itself represents 46% of payments revenue, we’re talking about approximately 18.4% of European banking revenues emanating from consumer payments alone. Disrupting this could have far-reaching consequences.
- Liquidity Preservation: The Deputy Governor highlighted the necessity of imposing a cap on individual digital euro holdings. This is a tactical move to prevent a mass exodus of deposits from traditional banks into the digital euro, which could wreak havoc on bank liquidity. Although €3,000 is the preliminary figure being discussed, the actual cap will be contingent on the economic atmosphere closer to the launch date.
- Financial Stability: In light of the bank crises witnessed in the U.S. and Switzerland earlier this year, Delgado underscored the imperativeness of financial stability. As a digression, Miguel Fernández Ordóñez, the former Governor of the Bank of Spain, opined that banks should become ‘narrow banks,’ focusing primarily on credit services, while a CBDC takes over the deposit-taking role to add stability to the financial ecosystem.
Delgado’s speech comes at a pivotal time when the relationship between traditional banking and digital innovation is under intense scrutiny. While some academicians propose that CBDCs could potentially supplant traditional banks in their role as deposit takers, thereby introducing more stability into the financial system, Spain’s central bank appears committed to a balanced approach that minimizes systemic shocks.
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