Euro trading

The launch of a digital euro is shaping up to be a damp squib amid expectations that the new digital currency will face limited uptake, says S&P Global Ratings in a new report.

Last November the European Central Bank (ECB) announced it had entered a new phase in the digital currency’s development, with the possibility of a digital euro being launched as an alternative to traditional physical currency in the next several years.

This poses a couple of key risks to traditional financial institutions, S&P said, such as reduced revenues from card issuance and payment processing, and declining deposits as savers switch to the new digital alternative.

However, the rating agency said, “We think the digital euro offers few benefits over traditional deposits and expect initially weak uptake.”

Between its belief that a digital currency will have limited appeal and the market’s expectations that digital euros will initially be restricted to €3,000 per person, S&P said outflows of traditional bank deposits will be low.

It estimates that between 0.5% and 2.0% of total overnight bank deposits could be shifted to a digital euro if and when it becomes a reality.

A final decision on the launch of a digital euro won’t come until legislation has been finalized, and that is not expected until late 2025, S&P said.

“Until then, eurozone financial providers face an uncertain wait,” it noted.