Digital euro plans would put huge strain on banks’ people and resources

The European Commission (EC) is working on legislation to issue and use a digital euro to complement the cash euro of tangible coins and notes. Actually developing and issuing such a digital euro will be in the hands of the European Central Bank (ECB). The EC bill includes an implementation task for European banks. On behalf of three major European banking umbrella organisations, consultancy firm PwC conducted a study on the expected impact on banks of the EC’s current plans for the digital euro.

For this, PwC conducted research among 19 banks in the eurozone, including Dutch banks. The study shows that the plans for the digital euro would take up almost half of European banks’ appropriate human and resource resources for development and implementation in the payment domain for at least four years. A year-long halving of people and resources for other developments at banks would come at the expense of their innovation and competitiveness. As a result, European banks have less room to compete with each other, with non-bank payment institutions and with non-European financial institutions.

The PwC study estimates that implementing and adopting the digital euro will cost each bank an average of €110 million. This does not include the cost of offline payment functionality, multiple digital-euro accounts per user and specific solutions for entrepreneurs (such as retailers) that are also included in current plans. Too little is known about these yet to estimate the costs. For all banks across the eurozone combined, the total costs amount to at least €18 billion, according to PwC; a conservative estimate that only includes banks’ changeover costs in the first four years. Many other costs in the envisaged payment chain for the digital euro, both inside and outside banks, are not included.

The insight provided by this study, despite its limitations and uncertainties, shows that a careful cost-benefit analysis is needed before the European Commission, the European Parliament and the European Council proceed with major legislative decisions on the digital euro and before the ECB makes draft decisions on its implementation.

The estimates in the PwC study raise concerns about the expected impact on banks of current plans around the digital euro. That impact calls for an evidence-based discussion on the goals of the digital euro, a discussion that takes into account banks’ available people and resources.

The introduction of the digital euro represents a major intervention in the financial system. In the long term, the digital euro seems viable only if it can achieve concrete, relevant goals and the demands on people and resources are proportionate. Optimal use of existing private infrastructure and industry standards is essential. The digital euro should be simpler, with more focus on what really matters to Europe (resilience and sovereignty). It should be limited to essential use cases that existing and advanced new market solutions do not offer, such as an offline fallback option in case of power and telecoms failures.

Read the study by consultancy PwC