Digital euro could deplete bank deposits by 8%, Morgan Stanley says

A digital euro could deplete bank deposits by 8%, according to a Morgan Stanley report cited by Reuters.

• The U.S. investment bank based its estimate on a scenario where all citizens in the euro region aged 15 and older transfer €3,000 ($3,600) into a European Central Bank (ECB) digital wallet, Reuters reported Tuesday.

• Morgan Stanley says this is a "bear case", using €3,000 as an amount because it was mentioned by ECB policymakers as a theoretical cap for citizens to hold.

• "This could theoretically reduce euro-area total deposits, defined as households' and non-financial corporations' deposits, by €873 billion [$1.06 billion], or 8%," Morgan Stanley said.

• Smaller euro-zone countries – such as Greece, Latvia, Lithuania and Estonia – would be hit the hardest. In these countries, converting €3,000 would be equivalent to 22%-51% of household deposits and 17%-30% of total deposits.

• Like the majority of major central banks, the ECB is researching the implications of a central bank digital currency, with the threat to bank deposits often highlighted as one of the potential pitfalls. Should consumers choose to use a digital euro for everyday spending, depleted bank deposits would hamper banks' ability to lend money as loans, mortgages and so on.

• ECB President Christine Lagarde said in March that a digital euro is likely to be launched within four years.