The European Central Bank (ECB) is moving forward with the retail digital euro, a CBDC that would allow citizens to store and use money directly issued by the ECB, bypassing commercial banks. While officials insist they do not intend to replace private banking, the design of this digital currency could weaken its role in financial intermediation.
Today, most of the money people use in bank deposits is created by commercial banks, not the central bank. This allows banks to finance the economy by granting credit, using deposits as a base. A retail digital euro would fundamentally change this dynamic.
Banking disintermediation: If citizens can deposit their money directly with the ECB, private banks would lose a key source of funding. With fewer deposits, their ability to lend would shrink, affecting investment and economic growth.
Deposit flight during crises: In times of uncertainty, customers could quickly transfer their money from private banks to the digital euro, seen as safer since it is directly backed by the ECB. This could destabilize the traditional banking system.
Unfair competition: While private banks must attract deposits by offering interest rates and managing risks, a retail digital euro would not have these constraints. Even with restrictions such as holding caps or the prohibition of interest, its mere existence could trigger a gradual migration of funds toward the ECB.
The ECB aims to mitigate these risks by limiting how much digital euro a person can hold and ensuring it does not generate interest. However, these measures only reduce the impact without eliminating the structural threat posed by a direct-access public digital currency.
Regulated private stablecoins: Instead of a CBDC that centralizes monetary control within the ECB, private banks could issue stablecoins backed by deposits and regulated under a clear framework. A system where digital money remains in the hands of the private sector preserves competition and prevents the nationalization of banking.
Bitcoin and Layer 2 as the foundation of the future financial system: Bitcoin, being decentralized and scarce, eliminates the risk of monetary manipulation. With scalability solutions like Lightning Network and financing models based on Bitcoin collateral, private banking can evolve without relying on central banks.
The digital euro is not just a new payment method; it is a mechanism that shifts financial power to the ECB, weakening private banking and monetary freedom. If fiat money is to remain, it is preferable for its digitalization to be led by private banks with regulated stablecoins rather than a CBDC that centralizes control in the central bank.
In the long run, the true evolution of money does not lie in CBDCs but in the decentralization enabled by Bitcoin and its secondary layers. Private banking does not have to disappear but must adapt to a world where trust no longer depends on central banks but on open and decentralized protocols.