What is the digital euro

Upgrading money to the digital age

Digital Euro is a digital system of payments and transactions. It should have the same properties as cash, but simply in a digital format. By designing a public and privacy-respecting digital currency, the ECB would allow citizens to store their money at the central bank. The digital euro should not replace physical cash: your possibility to use banknotes and coins should be protected!

Besides hoarding cash under a mattress, right now people have little choice but to use private banks to hold their savings, receive their salaries and make daily payments. Few people are aware that the money in their bank accounts exists only as virtual money, and is legally the property of their bank. The money at the bank actually constitutes a debt from the bank towards its customers. 

By contrast, physical cash (banknotes and coins) is the only form of money that is actually created by national central banks and is not tied to a specific debt owed by a bank to individuals. When the central bank issues cash, this also creates income for governments – known as seigniorage. In addition, cash is the only payment system that is entirely free and accessible to everyone, even for those who don’t have a bank account.

Will cash disappear in the future?

Physical cash is currently the only way to transfer money at low cost and without loss of privacy. Without the ability to use cash, there is no way to opt out from the current banking system. 

Coins and banknotes are a valuable public utility service, however, it is being threatened by the growing use of contactless cards, mobile apps and cryptocurrencies. 

Today’s digital technology is everywhere and enables us to make user-friendly payments. As more and more people stop using coins and banknotes, there is a risk that cash will soon disappear. 

With the end of cash, the entire money and payment system would be left in the hands of a few increasingly powerful private financial companies. These companies would gain even more power to monitor what we pay for and with whom we exchange. 

Money is a public good and must remain so. Instead of letting technology benefit big corporations, we must instead use technology to redesign our monetary system so it works in the public interest.

What is the digital euro?

Positive Money Europe advocates for the introduction of a digital euro in the Eurozone. Under such a system, the ECB would allow citizens to store their money at the central bank and make all sorts of basic payments and transactions with it. In essence, a digital euro would ensure that the EU continues to provide money as a public utility service instead of letting private companies run our money system. 

Digital euro should have the same properties as cash (free of charge and non-debt based), but in a digital format. The digital euro would not replace physical cash, and we believe your ability to use banknotes and coins should be protected.

The digital euro system would interact with the privately run banking system, meaning that people could move their money out of their commercial bank accounts to their digital euro accounts and vice-versa. Since money stored at the central bank would be risk-free, this would make the money system as a whole less dependent on banks and therefore less risky. It would thus also reduce the need for governments to bail out banks that are “too big to fail”. This system could make deposit insurance schemes less necessary.

A public digital euro would remove the banking system’s privileged access to central bank money. By allowing people to use central bank money as well, it would reduce the concentration of economic power in a few large private institutions. Because people would have more freedom to manage their money and banks would receive fewer implicit public subsidies, for instance in the form of deposit guarantees and bailouts, a digital euro would force the banking system to be more ethically responsible and competitive.

Because it would be public, a digital euro would provide a safer and more stable form of value than private shadow money, and would have the potential to increase financial stability. Moreover, if many people have a digital euro wallet at the central bank, it would provide more direct tools for the ECB to implement its monetary policy. 

The ECB’s conservative approach

Despite this big potential, whether the digital euro achieves its purposes depends on technical details which are going to be defined in the coming months. However so far the ECB’s plans to introduce a digital euro are disappointingly unattractive, and overly protective of the vested interests of commercial banks. 

The ECB is considering introducing a cap on the number of digital euros one can hold, or levying a tax above a certain amount of digital euro holdings. Furthermore, there are doubts about the ECB’s commitment to respect citizens’ right to privacy, as they want to prioritise compliance with anti-money laundering regulations and thus ensure governments can trace payments.

Overall, it seems the ECB wants to introduce a digital euro in a way that does not challenge the current privileges of the banking sector.

Last but not least, rather than inviting a broad range of stakeholders and openly exploring the potential of a public digital euro, the ECB has so far mainly sought advice from private finance professionals.

It is crucial that we get democracy involved in this process. As Positive Money Europe, we are joining forces with other civil society organisations to open up the dialogue on the digital euro and to advocate for an attractive, privacy-friendly, public digital currency that improves the functioning of the financial system.