Does the digital euro project herald the decline of central banks?

(EXPERT OPINION) The ECB is working on a digital euro. A project that worries commercial banks. Decryption with our expert Guillaume Almeras, founder of the monitoring and advice site Score Advisor.

A recent publication from the French Banking Federation once again marks banks' opposition to the digital euro project as profiled by the European Central Bank (ECB).

This opposition (which is not limited to French banks) is both unique – since it amounts to properly dismantling the ECB's arguments – and unprecedented since, for the first time, commercial banks are expressing their fear that their central bank does not… directly compete with them.

As announced by the ECB, the digital euro (“Cash+”) would be a digital version of cash. What does that mean? That it would allow us to pay for our purchases without using cash? But what new would it bring? The ECB argues that it would strengthen the monetary sovereignty of the euro zone and that it would improve the European payments ecosystem, particularly in terms of immediacy. It is easy for banks to point out that such arguments hardly hold water. This digital euro would bring nothing more than what already exists or is currently under construction.

The digital euro would be used through an electronic wallet. One more than all those that already exist, but managed by the central bank itself, which is in no way its role and which would require it to open bank accounts, in competition with commercial banks. So by putting the latter at risk of massively stealing their deposits (taking into account the guarantee from the Central Bank from which they would benefit), to the detriment of their transformation role (the conversion of deposits into credits).

The ECB tries to reassure the banks

The ECB is in no way ignoring these fears. She tries to answer them. She has already conceded that accounts allowing the use of the digital euro will not be remunerated and will be limited in amount. We talked about 3,000 euros. French banks would like us to limit ourselves to 100 euros “based on average withdrawals from ATMs (113 euros) and card transactions”.

However, this limitation does not resolve the question: why would the ECB engage in the management of personal accounts? This seems so strange that it easily leads to attributing to the ECB dark aims of social control of populations. However, let us simply note that such aims would in no way require the launch of a digital euro.

So why is the ECB pursuing such a project? The idea of ​​developing a digital equivalent to cash is not absurd. In many emerging countries (and this also concerns China), central bank digital currencies in fact pursue the objective of banking economic agents, without excluding banks. But beyond this objective, in very widely banked countries, such as in Europe, digitally replacing cash represents squaring the circle.

Using cash is very convenient in fact and, to give a digital currency the same ease of use, it would have to be usable outside the internet, when a mobile phone is discharged and even when there is no more money. electricity. This represents particularly heavy and not entirely satisfactory technical developments.

Furthermore, you can use cash anonymously. However, once money no longer has a material support, it is reduced to account entries that must be followed by name. The only way to do this anonymously is to set up encrypted and decentralized systems, like those of cryptocurrencies, that is to say precisely without an actor playing the role of a central bank (even this does not does it not guarantee absolute anonymity).

Rise of cryptos

In short, replacing cash is a challenge, which is only necessary if we believe that everything, absolutely everything, must become digital. However, the Central Bank of Sweden – the European country most committed to the disappearance of cash – is now calling for the use of cash to be protected.

Does this bury the project of a digital euro? At the origin of this project, there is the rise in power of crypto-currencies and above all the real thunderbolt represented, in 2019, by the Libra project (later named Diem) by Facebook (now Meta). A stablecoin, a digital currency aligned with an existing currency (the dollar) manageable via a Novi digital wallet and administered by an ad hoc “central bank”, a consortium bringing together 28 companies and NGOs, exactly like, historically, the first central banks brought together private actors. The digital currency projects that nearly 70 central banks around the world are following today duplicate the same pattern but attempt to apply it within the framework of their traditional role.

However, the Libra project was quickly abandoned. And no cryptocurrency has established itself as a currency, not only as a transaction tool to pay for everyday purchases (including, it seems, in the two countries, El Salvador in 2021 and the Central African Republic l last year, which legalized bitcoin as a second currency) but above all as a unit of account. The value of a bitcoin is expressed in dollars, but what goods are valued in bitcoins?

The risk nevertheless remains that new private international settlement systems, such as Circle for example, will replace public systems and, bringing together certain private economic giants, will impose their currencies as new units of account which they would have the privilege of the broadcast. To put it quickly: there is a risk that flourishing private consortiums will come to more or less replace the central banks of… over-indebted states. Because the existence of such actors could give rise to a crisis of confidence in one or more state currencies, the defense of which represents the main role of central banks, to which all their other monetary policy missions (monetary issue, key rates, etc.) obviously remain. suspended.

At this stage, as it remains designed, the digital euro project therefore seems rather poorly off to a good start since either it would lead the ECB to replace the banks, or it would be of no use. In both cases, it represents a solution in search of a problem. Moreover, the decision to commit it has been postponed until the second half of 2025. But if its success seems difficult to envisage as it stands, its abandonment could mark the entry into a whole new world of public and private currencies.

By Guillaume Almeras, founder of the monitoring and advice site Score Advisor

Related Posts

SWIFT CBDC threatens BRICS monetary project

7:17 a.m. ▪ 3 min reading ▪ by Luc Jose A. A central bank digital currency (CBDC) linked to the SWIFT network should be launched within a…

El Salvador double sa mise sur Bitcoin

El Salvador doubles its stake on Bitcoin

In a series of strategic measures that underline its commitment to cryptocurrencies, El Salvador continues to deepen its engagement in the digital currency market, particularly bitcoin (BTC)….

Le Premier ministre britannique, Rishi Sunak, nourrit de longue date l’idée d’instaurer une monnaie numérique de banque centrale au Royaume-Uni.

will a digital pound sterling see the light of day in 2024?

Central bank digital currency projects (or CBDC, for Central Bank Digital Currency) flourish all over the world. In this regard, the United Kingdom is no exception. The…

Launch of the digital euro: what changes? (episode 3)

While there were no Central Bank Digital Currency (CBDC) projects in 2016, these projects have proliferated in recent years: although there are only 2 countries that have…

A few weeks before the halving

Blockchain Chronicle. The upcoming bitcoin mining reward halving comes amid increasing integration of traditional and digital finance. Imagine a biscuit distributor who, every four years, halves its…

Can you pay your taxes in cryptocurrency in Europe?

Paying taxes with digital currencies is already a reality in Switzerland, which is leading the European race to integrate cryptofinance into traditional banking systems. ADVERTISEMENT Adapt or…

Leave a Reply

Your email address will not be published. Required fields are marked *