CBDC: The digital euro must not be allowed to come

Many central bankers and policymakers see CBDCs as the next big step toward advanced digitization, which should create more independence from large technology companies to boot. Indeed, the arguments around the digital euro seem promising and reveal some advantages. Nevertheless, the idea holds a variety of concerns and risks, which will be presented once in this article.

CBDC stands for “Central Bank Digital Currency” and describes a digital currency that is issued directly by a central bank. In contrast to the already available digital Giralgeld, it is real money. Giral money is initially created via the banking system and shifted back and forth via various participants. For example, a payment service provider such as PayPal* advances money when a user sends money from his checking account to another PayPal user via direct debit. The platform briefly extends credit to its user until the money is ultimately transferred.

With a CBDC like the digital euro, such intermediate participants no longer exist. The digital euro is issued and managed directly by the central bank. It runs through a single, central office.

It will not be more efficient and cheaper

This is also the first point of criticism that must be made for the planned, digital euro. Since every citizen now has an account directly with the central bank, commercial banks are actually no longer needed. Nevertheless, the European Central Bank still wants to maintain them and have them serve as service providers for merely passing through transactions. The argument that the digital euro would make cash much cheaper is thus invalidated.

Above all, the digital euro is supposed to increase convenience and make the EU less dependent on payment service providers from the U.S. – such as American Express, PayPal, Visa or Mastercard. Using digital bancassurance money is already not really complicated. On the contrary, the user will not notice the difference in practice.

Euro auf SmartphoneBild von Willfried Wende auf Pixabay

Data protection, privacy and security concerns

CBDCs also limit data protection and privacy. Introducing the digital euro would necessarily mean that all transactions could be processed through the central bank’s system and thus theoretically tracked and recorded. Every financial transaction of every citizen would thus be potentially viewable by authorities and third parties, threatening personal freedom and control over one’s financial affairs.

While this may also apply to some extent to banknotes, in the case of an online purchase, only the customer and the seller know all the details. The house bank is only told how much money changes hands, but not for what. At the end of the day, the central bank only receives the amounts collected by the commercial banks, which means that no conclusions can be drawn about individual customer transactions. Although the European Central Bank promises a high level of data protection, it can only guarantee this to third parties, not to itself.

In addition, a centralized digital currency system becomes an attractive target for hackers, who could try to penetrate the system to cause financial damage. Digital currencies must therefore be well protected against cyberattacks and hacking attempts, otherwise trust in the financial system is risked.

Possibility of censorship and exclusion

Today, if a bank blocks a customer’s account or does not open a new one due to its own risk concerns, the customer always has the option of simply going to the next one to try – some bank will surely want to make money from him. However, if the account is blocked under a CBDC at the central bank, the holder is completely excluded from the payment system. The digital euro is therefore easy to censor and theoretically allows unwanted citizens and institutions to be excluded. Even individual transactions could be excluded.

One of the main tasks of central banks is to control the available money supply via the key interest rate. In doing so, they create incentives among citizens to save or spend the money in circulation more effectively in order to stimulate the economy or limit growth. With the introduction of a digital central bank money, this necessity would be eliminated. The central bank can adjust the money supply directly without the need for an incentive system.

The biggest problem: programmability

Programmability gives central banks even greater influence on the economy. For example, the digital euro can be used to create a kind of voucher money. Example: If someone earns little and cannot afford a new car, the state can support them by granting permission for the purchase of a new vehicle directly in the citizen’s account. However, only three specific brands from the state’s own currency and economic area may then be purchased. Other manufacturers go empty-handed, the state determines what may and may not be purchased.

Or the state pays its citizens a flat rate for energy costs, as it did in the Corona era. This could then be programmed so that the tax gift can actually only be used for energy expenditures. Anyone who wants to spend such a programmed euro elsewhere cannot do so. Once again, the state and the central bank make the regulations and can thus steer the economy in a more targeted manner and simulate demand.

This not only unbalances the supply and demand structure and worsens the efficiency of the market for potential new developments, but on top of that restricts the individual freedom of every citizen. It would be a clear step in the direction of a planned economy.

Direct punishment possible without lengthy processes

The possibilities of influence in programmability can even undermine the executive and judicial branches of our democracy, since any punishments can be carried out directly without the need for a police force or even criminal proceedings. Anyone who parks incorrectly will have their fine debited directly from their digital central bank account. Anyone who has committed a serious offense can theoretically be completely excluded from social life and have their spending limited to the bare necessities. Spending at the bar, the movies, or the amusement park is denied. Everything in life happens through money: any expenditure of energy, right down to a visit to the hairdresser or bar, is subject to the social process of money. The programmability of CBDCs opens up the possibility of a powerful social credit system.

In the absolute worst case, as described by financial journalist Joe Martin in his book “2024 – How Digital Central Bank Money Threatens Our Freedom,” programmable money can be used to make people do completely different things. A fellow citizen has been excluded from the digital euro and can therefore no longer buy anything to eat. Anyone who wants to support him as a friend will have the fine for this deducted directly from his central bank account thanks to GPS localization via his smartphone account. If he does this more often or even gets closer to the person, the fine is steadily increased. Consequently, the help will be stopped at some point.

In the case of the convict, however, the hunger now becomes so great that he proactively asks others for help. But when he approaches other people, they also automatically receive money deducted from the central bank account via GPS tracking. Fellow humans now begin to distance themselves from him. At some point, the anger becomes so great that they physically fight back.

The programmability of real money can, in the worst case, lead people to take the lives of others without the state having to lift a finger or even commission a policeman or soldier.

A single institution determines lifetime

Today, money primarily means time in the form of work performance. We constantly hand over our life time as work in order to exchange it for money on the job, only to be able to buy the work of others who have created products or services for us that we demand. We are dependent on working time and money. Those who can control this dependency by determining purchasing power, access and use of funds have significant power. A small group of people gets control over many. This has a different quality.

According to the European Central Bank, the digital euro should not be programmable. But a digital construct like the digital euro is already programmed per se and can be reprogrammed at any time. While the current system of government may be trusted, it is not said that the same will be true for the next government. If there is a change, programmability can be introduced creepily. The past has already shown something similar: Money, for which there were initially fixed, central rules, has been steadily softened. Originally, the U.S. dollar on the gold standard was once backed by a semi-finite commodity. Today, it is based solely on trust.

Of course, all of this need never occur, but the mere fact that the possibility for this is theoretically created should be recalled by everyone. But especially those who now want to set up such a system to prevent individual groups from becoming too powerful. They must reckon with the fact that this tool can be taken over by others at some point. Then the damage will only become really great.

BitcoinDas Bild zeigt zwei goldene Bitcoin-Münzen.

There is no legitimate reason for the digital euro

Conclusion: While the idea of a digital euro may have actual advantages at first glance, the potential disadvantages and risks are not to be scoffed at. With the digital euro, in exchange for supposed convenience and independence, a few state institutions are given a potentially dangerous instrument of power that can later be abused by others. This has nothing to do with freedom and liberality. Rather, one should warn against the digital euro and reject it in its entirety. There is no legitimate reason for its introduction.

Ideal money must be fungible, verifiable, divisible, resistant to censorship, rare and, above all, offer a high degree of trust. The solution to this already exists: Bitcoin.