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Under a cloak of secrecy in the frozen hinterlands of Lapland, eurozone central bank governors will gather this week to thrash out how to sell a digital upgrade of the euro project to a skeptical public.
Not since French President Valéry Giscard d’Estaing floated the idea for a single currency in 1978 has European money faced such a radical shakeup.
A digital euro, if implemented, would fundamentally rejig the way assets and liabilities are managed on the central bank balance sheet with the aim of making payments more inclusive and efficient.
But the move brings implications for financial stability and privacy amid limited engagement with ordinary people. The adoption of the euro, by contrast, was preceded by years of often heated, and ultimately healthy, political discussion.
Debate surrounding the pros and cons of adopting a central bank digital currency (CBDC) has so far been largely confined to technocratic or academic circles.
In recent months, the opacity and lack of public involvement have been noticed by many on the political fringes. Celebrities like Russell Brand, comedian turned socio-political commentator with millions of followers on YouTube, have increasingly been making CBDCs a focal point of their coverage. In a recent video, Brand argued they pave the way for “globalist decrees coming on down from up high, avoiding democracy.”
That sort of discourse has convinced central bankers of the public relations challenge ahead of them if they are ever to achieve widespread public acceptance of the idea.
Who told you that?
While the fact of Wednesday’s meeting in the Finnish region of Inari has been made public, its agenda hasn’t. POLITICO has learned its attendees, governors of the 20 central banks of the eurozone and the six members of the ECB’s executive board, will discuss among other topics how best to persuade the public that a virtual extension of euro banknotes and coins is worth having and poses no threat to democracy or liberties.
“Who told you that?” Ireland’s central bank governor, Gabriel Makhlouf, asked when POLITICO questioned him on the Lapland conversations in an interview. He refused to be drawn on the discussion further, but added, “the world is moving in the direction of digital.”
“It will be wrong for the state, not just the central banking world but the state, to decide that it’s going to opt out of providing a fiat currency that is digital and leave it entirely to the private sector,” he said.
A digital currency, just like cash, allows people to pay for things instantly through a virtual wallet on a smartphone without the need for a bank account. It’s backed by a central bank so doesn’t have the same risks attached to it as cryptocurrencies.
The task of selling the idea has already begun. In a move aimed at quelling public anxiety, ECB executive Fabio Panetta reassured European politicians last month that the digital euro would never emulate China’s social credit system by including programmatic features, such as setting time limits or restricting spending in certain scenarios.
“The digital euro would never be programmable money,” the Italian stressed at a January parliamentary hearing. “The ECB would not set any limitations on where, when or to whom people can pay with a digital euro.”
The ECB has also stated, multiple times, that it has no interest in monitoring people’s shopping habits and that the digital euro could complement cash rather than replace it.
Democratic threat
But while central bankers like to laud the technical benefits of CBDCs, there’s no doubt the true motivations for a digital euro run much deeper.
Without a digital shift, many, including the head of the Bank for International Settlements, Augustin Carstens, fear declining cash use, the skyrocketing popularity of cryptocurrencies and Big Tech-sponsored challenger “stablecoins” — such as Meta’s now defunct Libra project — could threaten the sovereignty and raison d’être of central bank money.
Public understanding of the issues remains limited, however. On the streets of Brussels, locals seemed largely oblivious.
“It doesn’t change too much for me,” said Ghuiriz Octavian, a 40-year-old dry cleaner. He was generally supportive of the idea “if regulated by central banks and governments” even if “they do stupid things too.”
Lorenzo Moroni, a 23-year-old at an Italian delicatessen, was more informed. “You have to be ready for the metaverse,” he said, referring to Meta’s plans to create a virtual world. For him, cryptocurrencies are better than the digital euro “because there are no [vested] interests behind it.”
“They don’t want people to be free. They want to control,” he said.
Digital yuan
The increase in urgency to deploy a digital euro can also be linked to Beijing’s recent actions. The People’s Bank of China began the rollout of its digital yuan during the Winter Olympics last year, triggering fears in Western democracies the absence of their own contender could see them lose market share.
“Suppose that in 20 years from now that currency would become very popular. Can we rule out the possibility that we wouldn’t be … invaded by that money?” Panetta told skeptical MEPs during the January hearing, specifically naming China.
ECB technicians seem confident a viable version could be rolled out as soon as 2027 after nearly two years of in-house experimentation. The final go-ahead would rest on governors signing off on any potential financial stability risk not outweighing the benefits. This is not guaranteed. The allure of a risk-free savings instrument threatens starving banks of customer deposits — a vital source of funding for loans in the economy.
The European Commission wants to propose a legal framework for the CBDC by May. But the amount of work done behind closed doors has unnerved some members of the European Parliament.
“There is a lack of transparency and communication to the wider public and financial industry,” said Czech liberal MEP Ondřej Kovařík, who helped write the EU’s crypto market rulebook. “Full trust on the side of both citizens and businesses is needed. Otherwise, there is a risk that the digital euro will be a failure.”
Hard sell
Central bankers are well aware of the uphill battle they face in bringing the public on board.
A survey of 2,500 adults in the U.K. for POLITICO by Redfield & Wilton Strategies in 2021 found only 24 percent believe a digital pound could bring more benefits than harm. The ECB has also found in its own research that payment privacy is a chief concern among eurozone citizens.
“The digital euro project may have profound implications for society and the economy,” said Spanish Green MEP Ernest Urtasun. “It cannot be left to central banks and private companies.”
The ECB has said that it is prepared to cap the number of digital euros that people can hold and apply unattractive rates on large CBDC holdings to keep bank deposits in demand. Appeasing bankers will make the digital euro a harder sell, though.
“Let’s hope that in Finland, far away, they realize again that public and political support is essential to make this project a success,” said Dutch socialist MEP Paul Tang.
Johanna Treeck contributed to this article
