A new simulation by the European Central Bank has revealed that a future digital euro could strain Europe’s banking system at times of financial stress.
The exercise modeled a massive movement of funds from private bank accounts to euro digital wallets backed directly by the ECB.
Under the most extreme conditions – if every citizen transferred the full €3,000 allowed – the study suggests that up to €700 billion ($811 billion) could flow out of the banking system, draining around 8% of retail deposits. This level of withdrawal, the ECB noted, would be enough to push several small banks below safe liquidity thresholds.
Although the central bank called such an event “highly unlikely,” it acknowledged that the test underscores how quickly public confidence could shift toward a state-backed digital currency in a crisis.
Under calmer conditions, the impact would likely be modest. If users held only a fraction of the authorized amount, estimated outflows would decline to around €100 billion – a manageable figure that banks could absorb without disruption. Analysts also pointed out that the growing preference for digital payments could help balance any pressure on liquidity.
The ECB estimated that lowering the holding limit to between 500 and 2,000 euros would significantly reduce the risk of mass withdrawals, while a cap of 3,000 euros could further reduce banks’ average returns by around 0.3%.
The digital euro project remains at the heart of Europe’s ambitions to strengthen its financial sovereignty and reduce its dependence on foreign payment systems. However, commercial lenders continue to warn that they could withdraw deposits from traditional accounts if public confidence in banks wavers.
EU policymakers have approved a roadmap for the initiative, but will retain the right of final approval over its launch and design. For the ECB, the challenge now is to advance innovation without disrupting the stability of the European financial system.
