Eighth issue of Gentse Economische Inzichten
(14-03-2023)
Today the eighth issue of Gentse Economische Inzichten (Ghent University Economic Insights) has been published. Gentse Economische Inzichten is a forum for the broad societal dissemination of research findings and policy recommendations by researchers of the Department of Economics of Ghent University. Given that this forum focusses on the Flemish community, the Gentse Economische Inzichten are published in Dutch.
In this issue, based on recent peer-reviewed scientific research, we discuss the usefulness of the digital euro.
These are the most important insights:
- The European Central Bank (ECB) is currently investigating the usefulness of a digital euro for households and businesses and will communicate in October 2023 whether such a digital currency will be introduced and, if so, in what form.
- The digital euro will complement and not replace existing private digital forms of money and the trusted public money in the form of euro notes and coins.
- In addition to guaranteeing continued access to public money in digital times, the digital euro can contribute to streamlining existing private digital currencies and payment systems, a more reliable digital payment system and maintaining monetary independence.
- However, the digital euro could have a negative impact on the banking system and consequently our economic activity and prosperity if bank deposits are massively exchanged for digital euros. This poses a dilemma for the ECB as supervisor of the banking sector.
- Research shows that the substitutability of bank deposits and the digital euro leads to an expected decline in the profitability of banks that are relatively heavily dependent on deposit financing. However, this negative effect can be mitigated by setting limits on the amount of digital euros. What's more, an adequate determination of the supply of digital euros can limit the negative effects on the banking system to such an extent that an introduction of the digital euro will yield net welfare gains.
