Q26: How would the digital euro be different from stablecoins and crypto-assets?

The European Central Bank answers:

The digital euro would be central bank money, issued and guaranteed by the Eurosystem, which comprises the European Central Bank and the national central banks of the euro area. Like euro banknotes and coins, it would be legal tender, meaning everyone would be able to use it for payments. As central bank money and a public good, it would be stable and reliable – you would always be able to trust that one digital euro is worth one euro.

Stablecoins are created by private companies. They are not guaranteed by a central bank or public authority. Their value depends on how well the company manages its reserves and finances, and this can be influenced by factors outside their control. This means their stability is not as certain as that of the euro.

Crypto-assets such as Bitcoin or Ether are different again. They are not backed by any institution and have no underlying value. Their prices can go up and down sharply, and there is no organisation responsible if they lose their value.

We answer them:

While it may be justified to expect that a CBDC is more reliable compared to one issued by private (potentially unregulated) parties, framing the digital euro as “stable and reliable” is an oversimplification. Same as any payment scheme, the digital payment system that underpins the digital euro is still exposed to a broad range of risks. These include operational risks, fraud and security risks, liquidity risks, credit risks, settlement risks, technology risks, payment system arbitrage risks, third-party risks, and privacy breach risks [1]. The ECB, as the responsible public institution and operator of the digital euro, must take these risks into consideration, provide sufficient mitigations, and communicate them openly (KF3).

In addition to the mentioned risks, the stability and reliability of the euro— not just the digital one— ultimately depend on the actions of the ECB and its credibility, which is the basis of public trust in its currency. Seen in light of this connection of public trust and credibility, the decisions of both the Swiss central bank and the U.S. Federal Reserve not to issue a retail central bank digital currency, are likely in part due to the perceived risks to their reputation [2;3].

Presumably to ensure transaction privacy and data protection, the digital euro is designed as a two-tiered system, i.e., with a separation between the core transaction system and the customer identification system, following precisely the Libra/Diem design [4] by Meta (formerly Facebook). However, unlike Meta, the government is effectively immune to fines imposed for privacy breaches, as it would merely pay the fine to itself.

Even worse, enforcing claims against the ECB will be harder than enforcing claims against private companies. The ECB has political independence and an effectively unlimited legal budget, and can claim sovereign immunity. Thus, enforcing claims against the ECB is likely only to succeed in cases which the bank chooses not to actually fight. In summary, citizens have no effective remedy against breaches of the ECB’s mandates on data protection (KF1). In contrast, fraudulent cryptocurrency businesses have been successfully prosecuted and victims have received compensation [5].

Finally, there is a large difference between the private and the public sector with respect to what personal data enables them to do. Public authorities can change the rules and allow later something that is prohibited at a given time. They could for instance legalize the use of data for criminal and political persecution.

  1. C. Borio and P. Van den Bergh, The nature and management of payment system risks: An international perspective, BIS Economic Papers, vol. 36, 1993.
  2. Reuters, Swiss National Bank’s Jordan against issuing retail cenbank digital currency. https://www.reuters.com/markets/currencies/swiss-national-banks-jordan-against-issuing-retail-cenbank-digital-currency-2024-04-08/, 2024.
  3. Jean Flemming and Ruth Judson, Implications of a U.S. CBDC for International Payments and the Role of the Dollar. https://www.federalreserve.gov/econres/notes/feds-notes/implications-of-a-u-s-cbdc-for-international-payments-and-the-role-of-the-dollar-20240216.html, 2024.
  4. Diem Association, White paper. https://www.diem.com/en-us/white-paper/, 2020.
  5. Eurojust, Successful operation against cryptocurrency scam coordinated by Eurojust. https://www.eurojust.europa.eu/news/successful-operation-against-cryptocurrency-scam-coordinated-eurojust, 2024.