Many European banking groups are not supportive of the digital euro, Europe’s proposed central bank digital currency (CBDC). By contrast, the Italian Banking Association (ABI) has embraced it from the start. Despite this, a recent opinion piece by the association’s Director General, Marco Elio Rottigni, highlights the financial impact on banks. It estimates Italian bank IT costs as €880 million ($953m) plus, with a potential knock on effect on the capacity of banks to engage in other innovations.
“The digital euro has some important objectives for the community, including preserving Europe’s strategic autonomy and monetary sovereignty, reducing dependency on non-European operators, promoting innovation and a harmonized user experience in retail payments in Europe,” he wrote.
Despite this positive viewpoint, he noted the widely researched impact on bank deposits, some overlap with other payment methods, and the cost of IT development at banks. Hence, the ABI explored the IT costs with 18 banks. Based on the proposed rule book, it estimates the cost to Italian banks at €880 million.
“The authorities promoting the project must carefully consider how an investment of this magnitude does not limit the banks’ ability to innovate,” wrote Mr Rottigni.
However, that figure €880m excludes some major digital euro features which haven’t yet been specified. For example, the cost of adapting all ATMs, merchant point of sale changes, and especially offline payments without intermediaries.
He is also concerned that banks could invest this money, and non-European platforms could dominate the digital euro. That’s despite a goal of digital euro to encourage greater European autonomy.
Mr Rottigni made several proposals to mitigate the costs. These include rethinking the expensive offline functionality, allowing smaller banks to avoid costs by accessing the digital euro via larger banks, and simplifying the cash sweeping mechanism between the digital euro and bank accounts.
Different banking association perspectives
Mr Rottigni’s perspective is all the more notable because the ABI has been supportive of the digital euro. Perhaps that’s in part because one of the key architects was Bank of Italy Governor, Fabio Panetta, who led the project while at the European Central Bank. But it goes deeper than that.
Ledger Insights interviewed ABI Lab leader Silvia Attanasio in 2023 about tokenized deposits and wholesale CBDC. While she highlighted the limited number of projects that banks can afford to take on at one time, she also said, “our view is that it would be a great advantage for the entire market if it would be possible to build a private public partnership around the digital euro.”
She continued that banks wouldn’t need “another infrastructure to issue tokenized commercial bank money if we can reuse the infrastructure of the central bank.”
Meanwhile, other banking federations have conducted studies that particularly focused on the potential flight of bank deposits to the digital euro. The Federal Association of German Community Banks (BVR) found that if every person transferred €3,000 into the digital euro, only 56 out of 714 banks would meet the legally required liquidity buffers without pursuing alternative funding.
In a study by the European Banking Federation, a similar take up was estimated to cost European banks €20.4 billion annually in additional funding costs.
The combination of IT and other costs come at a critical time for banks. AI, stablecoins and other innovations demand that banks respond.
The digital euro is currently in a two year preparation phase that runs to October this year. At that point the European Central Bank will decide whether or not to proceed. But first the European Parliament needs to approve legislation.
