Central Bank Digital Currencies: Digital Euro and Its Implications for Uncovered and Covered Deposits

The introduction of central bank digital currencies (“CBDCs”)—notably the digital euro—stands to reshape the financial system’s structure. This study initially conducts a comparative analysis of household deposit outflow across the Eurozone, the United Kingdom, Canada, and China, before focusing specifically on the potential outflow from covered deposits protected by Deposit Guarantee Schemes (“DGSs”) in the first jurisdiction. The originality of our contribution lies in proposing a formula that calculates household deposit outflow while incorporating two weighting coefficients—both consistent with the literature: one to estimate the propensity to adopt digital instruments based on age clusters (which decreases with advancing age), and another to reflect the extent of digital currency adoption (which likewise decreases with age). The findings suggest that both the calibration of the holding limit and the demographic composition of the population exert a substantial influence on the potential outflow of household deposits and covered deposits, with implications for DGSs. Overall, the digital euro can enhance banking system efficiency and competitiveness, but requires a design balancing innovation, deposit stability, and depositor protection for banks of all sizes.