Capital Economics: Demand for Potential Digital Euro Will Determine Its Impact

Deep News01-16

According to a report by Capital Economics economist Andrew Kenningham, a digital euro could be launched before 2029, but there are risks of demand being either too weak or too strong. "Weak demand would limit its role in reducing Europe's reliance on US payment systems."

He stated that strong demand could lead to destabilizing deposit outflows from the banking system, although the proposed holding limit per individual should mitigate this risk.

He indicated that while the digital euro would represent a significant innovation and change to the eurozone's payment architecture, it would not eliminate the risks posed by the growth of the US stablecoin market. Policymakers have suggested that dollar-denominated stablecoins could be attractive to European households, potentially reducing demand for the euro relative to the dollar.

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