A new simulation by the European Central Bank has revealed that a future digital euro could severely test Europe’s banking system during times of financial stress.
The exercise modeled a mass movement of funds from private bank accounts into digital euro wallets backed directly by the ECB.
Under the most extreme conditions – if every citizen transferred the full €3,000 allowed – the study suggests as much as €700 billion ($811 billion) could exit the banking system, draining around 8% of retail deposits. That level of withdrawal, the ECB noted, would be enough to push several smaller banks below safe liquidity thresholds.
Although the central bank described such an event as “highly improbable,” it acknowledged that the test underscores how quickly public trust might shift toward a state-backed digital currency in a crisis.
In calmer conditions, the impact would likely be modest. If users only held a fraction of the permitted amount, the estimated outflow would shrink to roughly €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 liquidity pressure.
The ECB found that lowering the holding limit to between €500 and €2,000 would sharply reduce the risk of large-scale withdrawals, while a €3,000 ceiling could still trim banks’ average returns by around 0.3%.
The digital euro project remains central to Europe’s ambitions to strengthen its financial sovereignty and reduce dependence on foreign payment systems. However, commercial lenders continue to warn that it could draw deposits away from traditional accounts if public confidence in banks wavers.
EU policymakers have approved a roadmap for the initiative but will retain final approval rights over its launch and design. For the ECB, the challenge now lies in advancing innovation without unsettling the stability of Europe’s financial system.
