Two years after its launch, the ‘digital Euro’ project is attracting much public attention to strong views. Jolted into action arguably by Facebook/Meta’s audacious bid to issue a privately-controlled global currency, the Libra/Diem – the European Central Bank (ECB) in October 2020 started its own three-year project to issue a digital version of the European Union’s common currency.
In a public consultation in October 2021, it set out detailed positions and preferences on key design choices – including distribution (“direct access vs. “supervised intermediaries”), transfer (“account-based” vs. “wallet-based”), and arguments for and against the use of ‘digital Euro’ for offline payments.
This pragmatic – according to some, ‘technocratic’ – approach of the ECB has faced criticism from civil society representatives who argue that a ‘digital Euro’ concerns the whole of society, not only central banks and the financial industry.
In Everyone’s Hands – Protecting the democratic legitimacy of the Euro
In an open letter, issued by Institut Véblen and the Digital Euro Watch in February 2022, some 120 European scholars and civil society organisations called for a more democratic approach to the implementation of the ‘digital Euro’ by the ECB.
More recently, the ECB’s decision to invite Amazon, the giant U.S. digital retailer and platform operator as one of its development partners for prototyping the ‘digital Euro’ once again raised many eyebrows.
While the project is still only taking shape, it is becoming clear that the ultimate design of the EU’s digital currency is not merely a linear design process, but one that involves striking a careful balance between sometimes quite divergent stakeholders’ interests.
In doing so, EU policymakers and central bankers may find inspiration in the old adage that “a good compromise is one that leaves all sides equally dissatisfied.”
Civil society may have to accept that a complete disintermediation of the banking sector through the ‘digital Euro’ is unrealistic. Regardless of whether such an outcome would be desirable, it is clearly not politically feasible at the present time.
As a corollary, while it may seem appealing for citizens to hold risk-free deposits in ‘digital Euros’ at the central bank, free and unlimited mobility of deposits between private bank and central bank accounts may not be feasible for financial stability reasons.
The convenience of digital money also comes with another drawback – full, cash-like anonymity of digital payments is difficult to achieve, and equally difficult to reconcile with long-standing efforts by regulators and law enforcement to combat money laundering and funding of terrorism.
The ECB, too, will have to carefully consider that balance.
If its design of the ‘digital Euro’ is too concerned with preserving the status quo, in particular the role of banks and banking-sector intermediation, it may fail to gain acceptance and the general public may turn once again to proprietary, private-sector payment solutions.
Policymakers and central banks should also be wary of false compromises with the dominant digital platform operators – some of which may still have plans to launch their own, proprietary, stablecoin-based payment systems, by handing them a key role in the “digital Euro” ecosystem.
Finally, bearing in mind that money is a public good, and cash is the most traditional and universally accepted expression of money, access to cash must be maintained for as long as there is demand from the general public.
The ‘digital Euro’ should be seen neither as a purely technocratic project nor as a battleground for forcing a fundamental change of direction in monetary and financial policy. Democratic legitimacy, public acceptance and trust will be critical to any success.