Federal Association of German Community Banks: Digital Euro is dangerous for small banks

It is reported that a survey by the Federal Association of German Community Banks (BVR) found that the introduction of digital euro may have devastating consequences for the German banking industry. According to the survey, if each person converted 3000 euros into CBDC, only 56 of 714 institutions could meet the liquidity buffer required by law. This means that banks will have to find alternative and more expensive sources of funds.

Interpretation of this information:

The introduction of digital euro may have terrible consequences for the German banking industry, according to a survey conducted by the Federal Association of German Community Banks (BVR). The survey states that if each person converted 3000 euros into central bank digital currency (CBDC), only 56 out of 714 institutions would be able to meet the liquidity buffer required by law. This would result in banks having to search for alternative and more costly sources of funds.

The BVR survey suggests that a digital euro would make it harder for German banks to comply with regulatory requirements. Furthermore, it would raise their funding costs, placing them under greater strain. This would lead to a loss of profits, more stringent loan requirements, and ultimately, to the closure of some banks. The survey also stated that small and medium-sized banks would be the most affected by a digital euro’s introduction.

The BVR survey raises the question of whether a digital euro would genuinely be beneficial to the financial industry. While the digital euro would bring many benefits such as faster, cheaper, and more secure transactions, this survey suggests that the costs of introducing a CBDC would be far too significant to ignore.

Additionally, the survey suggests that the introduction of a digital euro would not only have repercussions for Germany’s banking industry but for the European Union as a whole. The study postulates that the adoption of a digital euro could lead to a significant shift from commercial banks toward the European Central Bank. This would undoubtedly be a significant concern for the continent’s regulators.

In conclusion, the BVR survey presents a sobering analysis of the potential harm that a digital euro could inflict on Germany’s banking industry. The high costs and strain on funding that would come with the introduction of CBDC means that regulators must tread carefully in introducing digital currencies. Furthermore, this report implies that policymakers must think about the introduction of digital currencies’ broad implications for the entire financial industry.