A new European Central Bank (ECB) stress test suggests that a future digital euro could cause major liquidity issues for commercial banks in a financial panic, with as much as €700 billion ($811 billion) potentially moving out of the banking system.

The simulation, conducted at the request of EU lawmakers, modeled a “flight to safety” in which savers rush to shift funds from bank deposits to ECB-backed digital wallets. If every citizen used the full €3,000 limit under this scenario, roughly 8% of retail deposits could be withdrawn – enough to push around a dozen smaller banks below required liquidity levels.

The ECB called the situation “extremely unlikely” but said the exercise shows how quickly confidence could move toward a state-guaranteed currency in a crisis.

Normal Conditions Show Mild Impact

In a more realistic scenario, where users only partially use their digital euro holdings, the outflow drops to about €100 billion, a level the ECB said banks could easily withstand. It added that a continued shift from cash to digital payments might even offset some of that outflow.

The ECB tested smaller limits of €500 to €2,000, finding that stricter caps dramatically reduce the risk of mass withdrawals. It also estimated that at the €3,000 threshold, banks’ average return on equity would decline by roughly 30 basis points.

Europe’s Balancing Act

The digital euro is being promoted as a way to give Europe more control over payments infrastructure and reduce reliance on U.S.-based networks. Yet, commercial banks warn that it could siphon away deposits if trust falters.

EU finance ministers have already approved a roadmap for its launch, while retaining veto power over the final rollout and the cap on individual holdings. The ECB, meanwhile, continues to stress that the project’s success will depend on maintaining innovation without triggering instability.

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