If too successful, the digital euro project could give people a risk-free place to hold their money, policymakers worry— undermining the commercial deposits that enable banks to lend to the economy.
Makes a little more sense when the rest of the thing is included
Does it, though? Ok, they want to protect banks (their business?) at all cost, but I can lend money to others without them as middlemen, and at the same time they seem to suggest that having money in banks is not risk-free. Not the greatest advertising strategy: my business is (inherently?) risky for my customers, and I oppose all risk-free alternatives. Because of reasons.
It does make sense. They see it as disruptive for the current model (which is always worrying when you don’t know exactly what will happen) and the risk-free would bring in worries about deflation.
I can lend money to others without them as middlemen
Private banks are highly regulated businesses to avoid fraud and maintain the trust and stability of the financial system. They also play a key role in the creation of money supply. Banks literally create money when they issue a loan, something no other business can do.
and at the same time they seem to suggest that having money in banks is not risk-free
Because it isn’t 100% risk free: your bank can default and if your cash balance exceeds the amount that is insured by the government you can lose that excess.
The central bank cannot go bankrupt because it issues its own currency. You could experience the effects of inflation, but you would be protected from bankruptcy.
That’s why authorities are concerned about allowing citizens to hold their savings in central bank accounts.
Makes a little more sense when the rest of the thing is included
Does it, though? Ok, they want to protect banks (their business?) at all cost, but I can lend money to others without them as middlemen, and at the same time they seem to suggest that having money in banks is not risk-free. Not the greatest advertising strategy: my business is (inherently?) risky for my customers, and I oppose all risk-free alternatives. Because of reasons.
It does make sense. They see it as disruptive for the current model (which is always worrying when you don’t know exactly what will happen) and the risk-free would bring in worries about deflation.
Reasoning makes sense to me as a worry to have.
Private banks are highly regulated businesses to avoid fraud and maintain the trust and stability of the financial system. They also play a key role in the creation of money supply. Banks literally create money when they issue a loan, something no other business can do.
Because it isn’t 100% risk free: your bank can default and if your cash balance exceeds the amount that is insured by the government you can lose that excess.
The central bank cannot go bankrupt because it issues its own currency. You could experience the effects of inflation, but you would be protected from bankruptcy.
That’s why authorities are concerned about allowing citizens to hold their savings in central bank accounts.