The digital euro: what is it and why is it criticized so much?

1. What is it: a digital euro?

It’s nothing yet, but eurozone countries, together with European organizations, are thinking about something called the digital euro.

At the moment, we often already pay digitally. But the money you have in your bank account is actually trade money. Money from your bank. You also need the banks to transfer it to each other.

Cash is different. Cash is issued by the European Central Bank (ECB) and is therefore government money. A digital euro would actually be a digital version of cash. It is money issued by the government (the ECB), but digitally.

2. How will we use that digital euro?

This is not clear yet. You may soon be able to have an account with the ECB, but that is not certain yet. Perhaps everyone who wants one will get a DNB debit card or an ECB app.

It’s also possible that you’ll find your digital government euros in your regular banking app. It’s all still early days, so we’ll have to wait and see.

3. Why is such a digital euro being considered?

There are several reasons. For example, people are paying less and less often in cash, which is government money. Pinning has become the norm. With the digital euro you ensure that there is still enough public money available.

While the digital euro would not be a substitute for cash, but rather a supplement, underlined Finance Minister Kaag last week.

Kaag also pointed to the fact that two-thirds of payment transactions currently go through American companies. Europe would like to keep control over payments and the digital euro could be one way to do that.

Finally, Europe is not alone in working on a digital currency. China, for example, already has a digital yuan and hopes developing countries will use it often.

The US is also exploring a digital dollar. And big tech companies, like Facebook, have come up with a digital currency before (and still deleted).

If those digital currencies become important to the balance of power in the world, then Europe doesn’t want to be left behind. So we’re also working on a digital currency.

In the video below, Frederieke Hegger talks about China’s plans for a digital Yuan.

4. But are there also criticisms?

Yes. There is no digital euro bill yet, but there are already many concerns.

For example on privacy. Some parties, such as the SP, want the digital euro to be as anonymous as cash. So that you can pay without the ECB knowing who is making the payment. But it looks like that won’t happen.

There is also criticism of the decision making process. Some parties believe that it has already been established that the digital euro will be introduced and that the wishes of the Dutch parliament are not being taken seriously.

But the greatest fear, widely shared also on social media, is that the digital euro will become ‘programmable’. In short, the government will soon be able to determine what you spend your digital euros on. For example, only sustainable products.

5. Are those critics right?

Kaag is clear on the programmability of the digital euro: “We absolutely do not want it. Not even the ECB and the European Commission want it”.

The minister also indicated that the Netherlands wants to stipulate by law that the euro cannot be programmed. The government therefore does not intend to use the digital euro to determine what can and cannot be bought. However, it should remain possible as a user to schedule a payment, the minister believes, for example to transfer rent monthly. This is a different kind of programming.

Whether privacy will be sufficiently guaranteed is still difficult to say, because there is still no concrete proposal. In any case, the Dutch cabinet, together with other countries, has asked in a letter for sufficient privacy.

Even if the minister is not in favor of complete anonymity, as happens with cash. This would increase the risk of money laundering. You’ll likely need to scan a passport, just like with a regular bank account, so it’s clear who you are.

What if everything has already been decided? The minister stresses that the digital euro is correct Not cast in concrete. “We can still decide not to.” This phase of reflection, which began in 2019, is precisely intended to indicate what the prerequisites for such a digital euro should be.

There will be a first proposal from the European Commission in the middle of next year. This will give us a better picture of what the digital euro might actually entail. Afterwards, it is optimized again. The Dutch cabinet will eventually co-decide on its introduction.