The European Union introduced the euro currency in 1999 as part of its plan to create a unified European market. Now, in the digital era, European institutions are considering the development of a digital euro, which the European Central Bank (ECB) refers to as “the next step in the advancement of our currency.” The digital euro has recently completed the investigation phase of a multipart plan by the ECB to determine the design and technical aspects of the proposed central bank digital currency (CBDC). The project has now moved on to the preparation phase, which the ECB aims to complete by October 2025.
Although the digital euro is still a work in progress, it has already raised concerns among some EU citizens and politicians who view the transformation of their shared currency as a direct threat to their individual freedom. In February 2023, over 1,000 demonstrators marched through the streets of Amsterdam to express their opposition to the digital euro. Some demonstrators were worried about the potential privacy implications of a digital currency. Despite the European Commission’s assurance that the new money would offer the same level of privacy as cash, there remains a significant level of distrust among European citizens and politicians.
While European authorities have provided some information about the nature of the digital euro, there is still speculation about its eventual design. Recent surveys indicate that citizens feel threatened by the surveillance powers that governments could acquire through a digital euro, while many others simply lack interest in the topic. This raises questions about whether one of the ECB’s most ambitious projects is jeopardizing the fundamental freedoms of EU citizens or if it is a matter of miscommunication that could be resolved with the right arguments and education.
So why does Europe need the digital euro? At its core, the digital euro is simply a digitally transacted euro. ECB President Christine Lagarde believes that the digital euro will make the European currency “future-proof.” For others, it represents something much more profound. In a speech in December 2023, Fabio Panetta, the governor of the central bank of Italy and an executive member of the ECB, compared the digital euro to the financial revolution in Italy during the early Renaissance, which laid the foundation for the current banking system. Panetta concluded that the digital euro represents the next pivotal point in the evolution of money. However, these high-level statements may be too abstract for the average citizen, and more concrete arguments are needed to convince Europeans of the necessity of a digital euro.
The arguments in favor of a digital euro based on convenience and financial inclusion are complicated by Europe’s cash-heavy payment system. Despite the COVID-19 pandemic accelerating the adoption of digital payments, cash remains the most popular payment option in Europe. As of 2023, 59% of total payments were made in cash. While this percentage has been declining overall, many of the 27 EU member countries still prefer cash. A survey conducted by technology consultancy BearingPoint in late 2023 showed that cash usage is particularly high in Austria (79%) and Germany (71%). Cash is also seen as necessary for the 5% of Europeans who are unbanked, totaling around 30 million people.
European authorities have recognized the importance of physical cash and have protected its use. The Spanish government, for example, attempted to pass a law in 2020 to prohibit cash, but the ECB swiftly rejected the initiative, stating that eliminating cash in the EU is not allowed. ECB President Lagarde has emphasized that the digital euro will coexist alongside physical cash, ensuring that cash will always be available and no one will be left behind. However, this insistence on the coexistence of cash and digital money raises questions about the effectiveness of a digital euro.
Another complicating factor is the importance of privacy. Cash payments are preferred by many because they allow individuals to preserve their privacy. The digital euro could potentially infringe on this privacy, as all payments would be conducted on a digital infrastructure provided by the central bank, giving the ECB access to every citizen’s financial records. Some argue that the digital euro could be used as a means of control, similar to China’s social credit system. Concerns about financial privacy and potential misuse of the digital euro as a weapon of control have led to skepticism among Europeans.
The digital euro also aims to provide Europe with an autonomous payments infrastructure. Currently, there is no true pan-European digital means of payment, forcing users who wish to pay digitally to rely on private, mostly non-European, payment providers. The digital euro package highlights the strategic autonomy it could offer by reducing the dependence on foreign payment service providers. It could also benefit European merchants by putting them in a stronger position to negotiate conditions with private payment solution providers, potentially reducing their costs and prices for EU buyers.
However, not everyone sees a problem with the prevalence of private payment systems. Some believe that the European private sector is already addressing this issue with initiatives like the European Payments Initiative. Markus Ferber, a member of the European Parliament, does not want to see the digital euro crowding out existing systems.
To address concerns and gain the trust of European citizens, the digital euro needs to provide reasonable solutions backed by solid arguments. Privacy guarantees are crucial for its success. The ECB could ensure privacy by launching the digital euro as an open-source CBDC, certifying that no backdoors exist. This approach aligns with the core democratic principles of the EU. However, there is an ongoing democratic debate about the digital euro, and feedback from European decision-makers, market participants, and potential users is welcome.
In conclusion, the digital euro is a complex project that requires careful consideration of privacy concerns, financial inclusion, and the coexistence of cash and digital money. European authorities must address these concerns and provide reasonable solutions to ensure the success of the digital euro and gain the trust of European citizens.