In 1999, the European Union introduced the euro currency as part of its plan to establish 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 investigation phase of the ECB’s multipart plan for a central bank digital currency (CBDC), known as the digital euro, has recently been completed. The project has now entered the preparation phase, with the goal of finishing by October 2025.
Although the digital euro is still in progress, it has already raised concerns among some EU citizens and politicians who see it 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, citing concerns about privacy implications. Despite the European Commission’s assurance that the digital euro would provide the same level of privacy as cash, there is still widespread distrust among European citizens and politicians.
While European authorities have provided some information about the digital euro, there is still speculation about its final design. Recent surveys indicate that citizens fear the potential surveillance powers that governments could acquire through a digital euro, while many others simply have no interest in it.
The digital euro is often described as a digitally transacted euro at its core. For ECB President Christine Lagarde, it will make the European currency “future-proof.” However, some argue that it represents a significant development that requires the full attention of European citizens. In a speech in December 2023, Fabio Panetta, the former 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 believes that the digital euro represents the next pivotal point in the evolution of money.
While these high-level statements in favor of the digital euro may be difficult for the average citizen to understand, more concrete arguments are needed to convince Europeans. European authorities must clearly explain why European citizens need a digital euro. Failure to do so risks undermining the project.
The digital euro aims to keep Europe in line with other countries and regions around the world that are digitizing their economies and experimenting with digital currencies. It also aims to promote financial inclusion in Europe and establish a universal European payment method. Additionally, it seeks to reduce EU dependence on foreign service providers and provide a digital equivalent of cash in the digital age.
However, the move towards a digital euro is complicated by the prevalence of cash in Europe’s payment system. Despite the rise of digital payments during the COVID-19 pandemic, cash remains the most popular payment option. As of 2023, 59% of total payments in the EU were settled with cash. Some European countries, such as Austria and Germany, still heavily rely on cash for transactions. Cash is also seen as necessary for the 5% of Europeans who are unbanked.
European authorities have protected the use of physical cash, as demonstrated by the ECB’s rejection of a Spanish government law that aimed to prohibit cash. The ECB has declared that the digital euro will coexist alongside physical cash to ensure that no one is left behind.
The issue of privacy further complicates the digital vs. cash narrative. Cash payments are preferred by many because they allow for greater privacy. Some worry that the digital euro could lead to increased surveillance and control by the ECB. Others fear that the ECB could use the data collected through the digital euro for purposes such as implementing a social credit system. While some argue that these concerns are unwarranted, others believe they should be taken seriously.
In addition to addressing concerns about privacy, the digital euro aims to provide Europe with an autonomous payments infrastructure. Currently, there is no pan-European digital means of payment, forcing users to rely on private (often non-European) payment providers. The digital euro package emphasizes the strategic autonomy it could offer in reducing dependence on foreign service providers.
However, some argue that the prevalence of private payment systems is not an issue. They highlight the European private sector’s development of the European Payments Initiative as a solution to the lack of a pan-European digital payment system.
Doubts about the digital euro are beginning to arise in Europe, with questions about its added value and concerns about potential misuse as a means of control. It is crucial for all open questions to be addressed through participation from all groups. The ECB welcomes ongoing democratic debate on the digital euro and believes that all European institutions have a role to play in making it a success.
The concerns surrounding the digital euro’s potential misuse as a weapon of control are valid and warrant serious consideration. To ensure privacy and transparency, some suggest launching the digital euro as an open-source CBDC to certify that no backdoors exist.
There are still several questions that need to be answered before the digital euro can be launched. It is important for citizens and politicians to receive reasonable solutions supported by solid arguments, and for the digital euro to provide a privacy guarantee in order to gain the trust of European citizens.