On LinkedIn, Deutsche Bank’s Alexander Bechtel highlighted that it is not the ECB’s intention to completely replace cash with the digital euro.
Dr. Krämer responded that even though the ECB states that a digital euro will be the third form of money, a digital euro will accelerate the already declining use of cash. And at some point, cash will become too difficult to use. Given the euro currently has negative interest rates, cash is the primary way to avoid this penalty. The only other option is to invest, increasing the risk of bubbles in financial and real estate markets.
During the podcast, the economist stated he didn’t believe cryptocurrencies were a valid motivation to launch a digital currency because the prices are too volatile, although he did not address stablecoins. At this point, he said he believed the real motivation is for the ECB to expand its influence.
He elaborated that consumers might choose to hold their money in a CBDC rather than bank deposits. This would deprive banks of a major funding source with a knock-on effect on the economy if credit were not as widely available.
The Commerzbank economist suggested that one route for the ECB to address the bank funding shortfall might be for the ECB to lend banks money in exchange for government bonds owned by the banks. That, in turn, would increase the ECB’s role in public financing.
It has a “very nice side effect, for example, replacing the financing of the banks with the reduction of government bonds,” said Dr. Krämer.
The podcast concluded that it is very likely a digital euro will be issued.
Meanwhile, Dr. Krämer’s views triggered quite a bit of debate on LinkedIn. On the one hand, some expressed fears about “complete digitization and complete government control”, particularly in the light of legislative changes during COVID. Others believe a digital euro is essential and note the already limited use of cash in some regions. However, to protect banks, the ECB could limit the amount that consumers hold, as widely suggested in many central bank CBDC papers.
Last month the ECB published a paper that explored how to reduce the impact of a digital euro on commercial banks.