Q1: Why does Europe need the digital euro?
The European Central Bank answers:We answer them:In a world where digital payments are rapidly becoming the norm, the use of cash is declining and the shift towards online shopping is accelerating. The digital euro would be a digital form of cash, giving consumers access to central bank money in digital form, complementing banknotes and coins.
The digital euro would make people’s lives easier by providing something that does not currently exist: a digital means of payment universally accepted throughout the euro area, for payments in shops, online or from person to person. Like cash, the digital euro would be accessible, free to use when making or receiving payments, and have legal tender status.
Moreover, the digital euro would preserve the monetary sovereignty of the euro area by boosting the efficiency of the European payments ecosystem as a whole, fostering innovation and increasing its resilience to cyberattacks and technical disruptions.
The ECB observes the need of cash-like means of payment for the digital realm, and claims cash-like character for the digital euro. But in its comparison of the digital euro to cash, the ECB ignores essential properties of cash, such as anonymity (cf. Q9) and independence of complex technologies (cf. Q8). On the contrary, the digital euro is far from being as inclusive as cash (cf. Q10).
The notion that the digital euro would be “free to use” oversimplifies the reality. As discussed further in Q21, the costs associated with the implementation and maintenance of a digital currency are significant (KF4) and in the end will be covered by the citizens of the euro area. The legal tender status paired with a holding limit of €3,000 (cf. Q24) offers no tangible benefits over commercial bank money with deposit insurance up do €100,000 (cf. Q3).
The claim that the digital euro would increase “resilience to cyberattacks or technical disruptions” unfortunately lacks support in published documents. Indeed, it may not be surprising if a central database of all digital euro transactions became a prime target for cyberattacks (cf. Q25).
Moreover, a digital currency system which depends on electronic infrastructure would in any case face significant challenges during technical disruptions such as power or Internet outages, particularly since converting online digital euros to offline versions requires Internet connectivity (KF2). Unlike physical cash, which remains usable in such scenarios, a fully digital system may fail if the infrastructure goes down.