Demystifying Consumers’ Adoption of a Digital Euro in the Euro Area

A central bank digital currency is a step forward for central banks in the context of technological advancements in the financial world. This study examines households’ digital euro adoption process in the euro area. It adopts a novel and simple approach to estimate the upper bounds of the short-term adoption rate in the euro area. Among the quantitative methods employed, the most significant are unsupervised machine learning algorithms (clustering techniques), non-parametric statistical methods, and an econometric vector autoregressive model. The results show that this process may be slower and less extensive than may be expected, and it is unlikely to considerably impact the economy and society immediately after its introduction. The model indicates that, in the best-case scenario, the maximum retail digital euro’s adoption rate at the euro-area level is less than 5% of the euro area banks’ total liabilities and approximately 20% of its quarterly gross domestic product. The findings are critical for the domain as policymakers could use them to adjust their impact studies over the banking sector and real economy. Additionally, this study proposes a new hypothesis regarding the parity of funding sources for digital euro accounts (cash reserves-to-deposits ratio).