The European Parliament approves the creation of a digital euro: should we be concerned about the state social control that it would allow?

Parliament approves the creation of a digital euro.

Atlantico: Parliament approves the creation of a digital euro. Since the end of 2023, the Governing Council of the ECB has decided to move to the preparation and testing phase of the digital euro. What could be the upheaval of this digital currency on the economic and financial level at the level of the European Union?

Christian de Boissieu: The European Union wants to give itself time before potentially moving to the digital euro. This comes following the rise of cryptoassets like Bitcoin. But cryptocurrencies are not currencies in their own right. They do not fulfill all the functions of a currency. Cryptocurrencies are not legal tender, except in two countries today: El Salvador and the Central African Republic. Central bankers prefer to talk about cryptoassets. This is a way of not recognizing the fully monetary nature of cryptocurrencies. These are decentralized and private digital currencies like Bitcoin or Ethereum. Since 2009, there has been a boom in these cryptoassets. Facebook even planned to introduce its crypto, its private currency, Libra. Facebook has between 2 and 3 billion users and therefore wanted to create a private currency for almost half the world. This would have been a monetary revolution and a challenge to monetary sovereignty, central banks and states. This is why national and international authorities, the FED and the ECB, central banks and regulators have stepped up to the plate. The project was not authorized and therefore was buried. The central banks felt the wind of the ball that passed with this massive project. To react to these private currencies, central banks have decided to launch their digital central bank currency, CBDC (Central Bank Digital Currency), for the euro and the dollar.

Central banks want to launch this digital currency project to regain control over cryptos. Central bank digital currencies are public currencies but are very different from cryptos. These are indeed official public currencies with central banks behind them. Whereas in cryptoassets, there is no central bank behind Bitcoin or Ethereum. These are currencies without a parachute. If their price were to trend towards zero, there would be no one to save the crypto.

The digital currencies of central banks are intended to become complete currencies like the euro for the euro zone or the dollar. On the other hand, cryptoassets are partial currencies.

In this matter, there are therefore issues of sovereignty and monetary control. This looks like a new currency war, between cryptoassets and the currencies of digital central banks.

Should we be concerned about a form of state social control that these digital currencies would allow, being inspired by the Chinese model?

Christian de Boissieu: The paradox is that China is the first country in the world to have developed its digital central bank currency. This could have been used as a means of control. The Chinese sought to innovate and be the first in this field. Donald Trump has declared that if he is elected in November, he will put an end to this digital currency project concerning the dollar. He will not authorize the Fed to produce its digital dollar because he sees it as an attack on individual freedoms.

The ECB embarked on this project but with a delayed timetable compared to its initial project. The experimentation phase should allow this project to be studied.

All central banks in reality are preparing their digital currencies, including developing countries. Nigeria, for example, is ahead. Southern countries and African countries are also working on a digital currency. There is therefore emulation and competition.

Behind cryptoassets there is blockchain technology and central banks have no reason to stay away from new technologies. Central banks wanted to upgrade the monetary issuance process by aligning it with new technologies.

These official digital currencies should make it possible to reduce transaction costs on the markets and bank commissions. Digital currencies would also facilitate the circulation of capital internationally, which will reduce delays. With the official digital currency, the transfer would only take a few hours and not a few days. This will facilitate transactions and international movements of capital by reducing their costs.

This system should also facilitate financial inclusion and help unbanked citizens in developing countries.

The banks are quite fearful or hostile to this project. Banks are afraid of losing individual or small business customers with these digital currencies. Banks are afraid of benefiting less from deposits and that this will drain their deposits. They would therefore have fewer resources to finance the economy and to ensure their profitability. Central banks must therefore reassure the banks under their supervision. This poses a problem for the composition of the money supply in an economy. If deposits fall, will banks lose out? A ceiling will be introduced to regulate the use of the digital euro and which would limit the possibilities of substitution.

Faced with the risk of state social control, will the safeguards in the context of the implementation of the digital euro be sufficiently secure and reliable?

Fabrice Epelboin: There is a very recent news story that perfectly answers your question. The use of biometric surveillance cameras is illegal. We have only just authorized an experimentation phase during the Olympics. Six months ago, Disclose revealed that in practice, they had been deployed almost everywhere in France since 2015. We have entered an era where technologies are deployed anyway, regardless of the legislation. There are no possible safeguards. The only safeguards are technological. This is what technology allows. I'm not telling you that we are going to become China. We use blockchain technology. We apply it to a central bank. What I am telling you is that there is no legislative text that will be able to regulate the evolution of this technology because we have already demonstrated in our current democratic everyday life that these safeguards have not been used to nothing.

We will necessarily expose ourselves to abuses which will be the abuses of our democratic system. And indeed, this will have financial and monetary consequences. There is no reason why a technology like state digital currencies should escape this drift. I insist, the legislative framework will not be of much use. The only way to protect yourself from excesses is to keep your money in cash.

Finally, why would copying the Chinese model based on social control be a bad idea?

Christian de Boissieu: This raises a debate on individual freedoms and it will depend on the precautions that are taken. The digital euro must also be a way of combating money laundering and combating the financing of terrorism. The digital euro should make it possible to improve the traceability of money. The digital euro should not be a system worthy of Big Brother. But fears exist. This is the position of Donald Trump or of certain citizens who consider that this will be a form of control.

Texts exist in Europe and in France on respect for individual data, notably via the GDPR regulation. If the digital euro sees the light of day, it will need to be updated, modified and strengthened.

Behind this question of digital currency, there is a data problem. The main fear lies in this area. Who will have control of the data and who will monitor it? The European regulation will have to be updated with the arrival of the digital euro. The CNIL in France will also have an important role to play in data protection and the processing of individual information.

Could EU member countries impose strict conditions which could go against public freedoms with the creation of this digital euro and with the evolution towards the digital world? Isn't digital contributing to an attack on our private lives?

Christian de Boissieu: It is difficult to reject new technologies under the pretext of the Big Brother argument. New technologies must be accompanied by a strengthening of all regulations protecting individual data.

The problem of access to data, confidentiality of data, circulation of data is the central question. The Chinese will do what they want and apply social control. But Europe will differentiate itself from this model. By combining European texts and national texts, the digital euro should not threaten individual freedoms. Safeguards exist thanks to changes in legislation.

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