CBDCs may be all the rage among central bankers, but as long as they offer little in the way of public benefit while posing huge risks to privacy, anonymity and other basic freedoms, they will struggle to gain traction.
A few months ago, European Central Bank (ECB) President Christine Lagarde had a rather surreal phone conversation. Under the mistaken impression she was speaking with Ukraine’s strongman President Volodymyr Zelensky when in actual fact she was talking to a notorious group of Russian pranksters, she opened up about the ECB’s plans for the digital euro, freely admitting that one of its main objectives is control and surveillance of people’s spending habits (something we have been warning about for the past year and a half). Her exact words:
“There will be control. You’re right. You’re completely right. We are considering whether for very small amounts, you know, anything that is around 300, 400 €, we could have a mechanism where there is zero control. But that could be dangerous…”
Lagarde also cited the war in Ukraine and Europe’s increasingly hostile relations with Russia as justification for a CBDC, saying: “I don’t want Europe to be dependent on an unfriendly country’s currency,” such as China’s or Russia’s. She also said the fate of a digital euro would be decided in October.
Here’s the recording in full:
ECB Leading the Way on CBDCs in the West
October is now just three months and one day away. As Reuters reported this week, the European Commission has already published draft legislation that will give legal underpinnings for a digital euro, assuming “the ECB decides to issue one in the coming years.” That seems to be a fairly sound assumption. The German financial journalist Norbert Häring has analysed the proposed legislation in depth and concludes that the only identifiable function of the digital euro is to “help displace cash and bring Europe closer to total digital surveillance”.
Of all Western central banks, the ECB is furthest ahead in the race to launch a CBDC, though it is still far behind China and India, both of which are already at the pilot stage of their respective CBDCs. In a talk last week with executives of European commercial banks, the Governor of the Banque de France, François Villeroy de Galhau, described the creation of a digital euro as a “duty” for Europe’s central bankers (a word Christine Lagarde has also used in the past).
“It’s very probably our duty to issue a CBDC, but it is our will to issue it with you, commercial banks, and not against you,” he said, adding that central banks are “complementary and not competitors on money and payments.” But Villeroy de Galhau also made it crystal clear that the ECB is determined to digitise so-called “public money” in the Euro Area: “As everything becomes digital, why should central bank money be the only thing to remain on paper?”
Some commercial lenders are concerned that central bank digital currencies (CBDCs) will lead to the disintermediation of the private banking system by offering users a safer place to store their money: i.e., a central bank. But Villeroy de Galhau attempted to allay such fears, insisting that the digital euro would not replace other forms of money. In fact, money, he said, “is and will remain a public-private partnership.”
A Serious Marketing Problem
One thing that is becoming increasingly clear is that the ECB’s digital euro, like all prospective central bank digital currencies, has a serious marketing problem — not just among commercial banks worried about the threat it could pose to their business model. As the FT reported last month, there are “mounting questions among consumers, financiers and politicians over exactly what the project actually aims to achieve and whether the potential risks outweigh the benefits”:
These questions have only grown as the immediate threat from cryptocurrencies has faded along with the decline in the value of bitcoin and other rival forms of money…
Some European policymakers fear that a failure to make a clear case for the digital euro will undermine the project before it is even born — that it will come to be seen as a solution that does not quite know what problem it is solving.
“What is the compelling reason for making this reform?” This is the big unanswered question,” says Ignacio Angeloni, a former ECB official who is now a part-time professor at the European University Institute in Florence. “I don’t see any big failures in the market that require the public sector to step in and provide a digital euro.”
Getting the Narrative Right
As we recently saw in Nigeria, CBDCs may be all the rage among central bankers, but as long as they offer little in the way of public benefit while posing huge risks to privacy, anonymity and other basic freedoms, they will struggle to gain traction.
Under the stewardship of Godwin Emefiele, its former governor, the Central Bank of Nigeria tried just about every ruse under the sun to expand public adoption and use of the eNaira, including removing half of all cash in circulation. But to no avail. Cash is still King in Nigeria and Emefiele is behind bars.
In Europe, central bankers are equally confident that the digital euro is just what the Euro Area’s floundering economy needs. But some politicians — who still have to care about annoying little things like public opinion, at least come election time — have serious reservations…
Read the full article on Naked Capitalism
Nick Corbishley 