Digital currency is a menace to commercial banks, financial analyst opines

Digital currency is a menace to commercial banks, financial analyst opines

Morgan Stanley, a financial analyst at the American investment bank, has evaluated the possible effect the adoption of CBDC could have on deposits in banks in the euro area. According to him, Banks in Greece and other smaller nations will be greatly affected by the digital currency.

In today’s Reuters broadcast, he noted that about eight percent of eurozone banks’ deposits could be drained by the adoption of EU CBDC. This effect may be felt more in Greece, Latvia, and other smaller nations.

This eight percent estimation was due to an incidence where the populace of the euro area above fifteen years deposited three thousand euros, about $3,637, into a CBDC wallet managed by the central bank of Europe. According to Fabio Panetta, this amount of digital money owned by citizens is speculative.

Morgan opined that theoretically, the eurozone deposits will dwindle by eight percent, which is about €873 billion. He also acknowledged that CBDC acceptance might raise the normal loan-to-deposit ratio by banks in the euro area. This will increase the possibility of banks not having adequate liquidity to take care of unanticipated financial needs. According to the analyst, the LDR will increase to 105% from 97%, however, banks may not observe the impact because it happened before the emergence of the coronavirus pandemic two years ago.

Central banks embracing digital currency has raised worries among other banks worldwide because the control of money will be limited to central banks. Previouly, a dialogue journal of the Bank of England represented a situation where 20% of all individual deposits in the UK were in the form of a CBDC. According to the paper, this probable discharge could make commercial banks revise their entire records in order to uphold their present liquidity ratio.
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