CENTRAL BANK DIGITAL CURRENCIES: IMPACT ON THE BANKING SECTOR

The issuance of a Central Bank Digital Currencies (CBDC) may bring the opportunity to revolutionize payments if its digital advantages over conventional money are leveraged. As a digital currency, a CBDC can help the financial system to keep up with the digital wave seen in other sectors, facilitating online business and the consumption of digital goods, such as music, and art, among others. The issuance of a CBDC can also have negative impacts on the financial system. Depending on the type of CBDC Central Banks intend to issue, there are potential risks not only for the banking sector and financial stability but also for households and businesses. This dissertation aims to understand: (1) the impact that the issuance of a CBDC would have on the Eurozone; (2) which CBDC designs could minimize the negative impacts on the banking sector and financial stability; (3) how the banking sector can add value to the Digital Euro. The method used for gathering empirical information was through interviews, collecting testimonies from professionals in the banking sector, whose knowledge and areas of work may shed some light on the impact of the issuance of a Digital Euro and how the banking sector can bring value to the Digital Euro. With this research, we can conclude that the introduction of a CBDC in the Eurozone, the so-called Digital Euro, could negatively affect the banking sector if not designed with it in mind. From the interviews, it was concluded that, as described in the literature review, in the worst-case scenario, the introduction of a CBDC could lead not only to disintermediation in payments but also, in times of crisis, to bank runs where customers with bank deposits would convert these into deposits with the Central Bank. After collecting the opinions of banking professionals, we concluded that the type of CBDC that would minimize the negative impacts on the banking sector and economic stability would be a CBDC with centralized architecture, account-based access method, a domestic scope, indirect control by the Central Bank, thus maintaining the existing Two-Tier System.