Central Bank Digital Currencies (CBDCs) - Friend or Foe

Sun 6th Aug, 2023

In the plans set forth by the European Union, the Euro is poised to transform into a form of "digital cash" within a few years. Nevertheless, electronic payment methods are already deeply entrenched in society. The question arises: what advantages does the digital Euro bring? And more pertinently, what risk does it introduce? The move towards Central Bank Digital Currencies (CBDCs) is accompanied by extremely dangerous potential side-effects that must be critically examined, but will most likely be brushed under the carpet.

Cash Stays - a Reiteration of the Obvious

The European Central Bank and the EU Commission conspicuously emphasize that citizens of Europe will still be able to utilize coins and banknotes for transactions. However, this type of statement is par for the course prior to any institutional shift in the opposite direction - when playing the long game, they can afford to appease objectors for a number of years.  It is worth noting that a CDBC is in the bank's best interest, far more so than any social benefit it may purportedly bring. The digital Euro is intended to complement traditional currency, not replace it. "It provides more choice," affirms Commissioner Mairead McGuinness. "We will be able to perform digital transactions that we currently conduct with cash, and it's essential to offer people this option. This is different from credit cards. We are discussing transforming our cash into a digital format, allowing us to use digital cash."

The Evolution of Digital Payments

In Brussels and Frankfurt, there is a consensus that the digital economy requires this next step - a platform for digital payments as an alternative to existing payment service providers. The objective is for consumers across the Eurozone to be able to make fee-free payments using digital Euros, facilitated by digital wallets or smartphones. This mirrors the capabilities of platforms such as PayPal and ApplePay. Furthermore, the ability to transact with digital Euros offline, without an internet connection, is being touted. However, Paypal, operating on a temporary licence, is already in trouble in the UK for its perceived stance against free speech, by reportedly closing accounts of individuals whose political views it disagrees with. A CDBC may fall foul of political interference or ideology in a similar manner.

As expected, commissioner McGuinness clarifies that this isn't a "Big Brother" project for online payments with digital Euros. Data privacy levels will remain similar to those of existing private digital payment methods. In fact, data privacy during offline transactions might even be higher, comparable to withdrawing cash from ATMs.

Revolutionizing Payment Transactions

The novel aspect of this system, as highlighted by Payment Expert Rudolf Linsenbarth, is that "I can hand you money - just like cash, without involving a third party." Payment processing occurs without the intermediary of a bank that manages an account.

Unanswered Questions

Despite the obvious enthusiasm of those who are set to benefit from this, there remain numerous unresolved details, according to Vice President of the European Commission, Valdis Dombrovskis. However, one "certainty" is that the digital Euro must stand up to the challenge posed by virtual currencies from other nations, such as the UK, China, and the USA. Dombrovskis points out that "more than 100 central banks are working on digital currencies," making it imperative for the Euro, the second most widely used currency globally, not to lag behind.

The Road Ahead

The digital Euro is slated to be recognized as legal tender alongside Euro coins and banknotes. The commercial sector would be required to accept digital Euros for in-store and online purchases.

Addressing Concerns

In an effort to thwart money laundering, the Commission proposes limits on the possession of digital Euros and offline transactions. The exact parameters of these limits are yet to be specified. The Bank of Enbgland proposes a similar approach, which caused concern.  The European Central Bank aims to allay fears within the German banking sector that the digital Euro will compete with traditional payment methods. The Commission's draft suggests that banks and payment service providers would facilitate the transition of digital Euros for citizens and businesses.

Challenges in Acceptance

The European Central Bank plans to decide in the autumn whether to advance the development of the digital Euro. If the decision is affirmative, its introduction is still a few years away at the earliest. A survey conducted by the German Banking Association (BdB) reveals that three-quarters of Germans view the digital Euro skeptically and do not deem it necessary.

In Conclusion

As the prospect of Central Bank Digital Currencies takes shape, it is imperative to critically assess both the benefits and potential hazards. The introduction of the digital Euro, while promising convenience, efficiency, and reduced data exposure, also raises questions about its competition with existing payment methods and its overall acceptance among the public, not to mention its use as a tool in "Cancel Culture", as one can see in the current UK de-banking scandal involving Coutts's and others. The journey towards a digital currency future must be undertaken with a thorough understanding of its implications.

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