Italian banks support digital euro, but express concern over bank disintermediation

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Italian banks are in support of a digital euro, as long as it doesn’t push them out of business. In a recent paper, the Associazione Bancaria Italiana (ABI), a trade association for the country’s commercial banks, also called for banks to be compensated for their role in distributing the digital euro.

Italy has been among the foremost supporters of the digital euro in the European Union. ABI has been leading the pro-digital euro campaign, and as far back as 2020, it voiced its support for the regional central bank digital currency (CBDC).

The 700-member association reiterated its support for the digital euro in its most recent paper.

“DLT enables a more distributed model for participants than the traditional one by effectively managing the allocation of responsibilities between the central bank and the digital euro distributors,” the association said.

Disintermediation of commercial banks

As with many banking organizations globally, ABI’s main concern with the CBDC is the disintermediation of commercial banks. With the users getting a direct channel to central bank money, they could bypass commercial banks, and in the long term, their funding could dry up.

ABI called on the European Central Bank (ECB) to preserve banks’ intermediation role as a basic principle when building the CBDC. The digital currency should also not compete with existing commercial bank instruments and must enable value-added services, ideally using distributed ledger technology (DLT).

ABI has called for the digital euro to be programmable in the past, a recommendation the ECB is against. The regional central bank says that a programmable digital euro limits the scope of use and takes away the fungible nature of the euro.

While the ECB will create a digital euro, it will be distributed by the existing commercial banks. The ABI said these banks should be incentivized or compensated for their role in the digital euro cycle. The banks will be bearing high costs related to anti-money laundering (AML) checks, dispute settlement, and more.

This proposal is supported by the Association of German Banks, which called for commercial banks to be appropriately compensated for their role in distributing the digital euro. In its paper two weeks ago, the association argued that the commercial banks would be helping the ECB fulfill its public mandate and should thus be compensated.

Disintermediation is a common concern in Europe and beyond as we march toward the era of CBDCs. In his attack on the digital dollar this week, Florida Governor Ron DeSantis cited it as a big concern, claiming a digital dollar would push community banks out of business.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

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