What is the status of CBDC, the controversial digital euro?

Photo: ANP / Lex van Lieshout

There has been a lot of buzz about the CBDC, or the digital euro, for some time now. Research platform Follow the Money interviewed Evelien Witlox, the director of digital euro at the European Central Bank (ECB). What does she have to say about the digital currency? And concerns that arise from society?

The CBDC, whose full name is the Central Bank Digital Currency, has been causing quite a stir for some time. Former Minister of Finance Sigrid Kaag and Queen Máxima, among others, appeared to be strong supporters of the cash alternative in the Netherlands. This is the amount up to which you can pay in cash in the Netherlands.

What is CBDC again?

But why do Kaag, Máxima and associates want this coin? We currently pay with cash (public, currency) and with money from our bank account (private, non-cash money). To put it bluntly, we get our cash from the state, or the central bank. And our bank balance runs through a commercial bank. The only public money is therefore cash, but there is no digital public payment method. In addition, Europeans rarely pay with cash and we are too dependent on the banks (which also makes us vulnerable in the event of a banking crisis). And that dependence gives banks a lot of opportunity to handle our money freely and unregulated.

But our Dutch parliament has little influence on these plans. Europe is at the helm when it comes to the CBDC. Such as the European Commission and the European Central Bank (ECB).

Digital euro director Evelien Witlox

But the digitization of all kinds of things also raises questions. This is how scientists warned the research platform Follow the Money for the Digital ID and there was criticism of a future European medical file. Privacy, neutrality and independence are also compromised by this digital government currency, according to critics. In addition, opponents fear that the digital euro is intended to monitor citizens’ transactions. And in the future, perhaps ban payments for unhealthy or polluting products.

Economist and Follow the Moneyjournalist Thomas Bollen has often written about the controversial CBDC. He spoke with Evelien Witlox, the director of digital euro at ECB. What does she think is the added value of that digital currency? “We are not going to force anyone to pay with the digital euro, but we are giving citizens an additional option: I pay with cash, I pay with a private payment method, or I pay with the digital euro.”

Privacy and government monitoring

FTM Witlox also presents concerns about the CBDC, about privacy and government monitoring. But according to Witlox, the privacy standards of the digital euro will be “superior” to the standards that currently exist when it comes to digital payments.

Because commercial banks can now identify the people behind digital transactions. According to Witlox, this will not be possible at the CBDC. “They will provide a level of privacy comparable to that of cash, as personal transaction data will only be known to the payer and the payee.”

Public and private money

Bitcoins, the Libra (a currency owned by Facebook, Mastercard and Uber, among others) or other digital currencies do not benefit the Central Bank, the monetary sovereignty of a country and the eurozone. According to Witlox, money should also be available as a public resource and not just come from private organizations.

Bollen points out that you also need banks or payment providers for the digital euro. He asks Witlox why the CBDC is independent of private parties. “Cash is also distributed through banks. That works well. You get the cash from your bank and put it in your wallet. It’s the same with the digital euro: you get access to your digital euros via your bank or payment providerbut it’s your money, your direct claim on the central bank, just like cash.” But there will soon also be a public way to get that money.

Replacement for cash?

The digital euro has a usage limit of 3,000 euros. You cannot save with the CBDC. According to Witlox, it is therefore a means of payment. And although the digital euro must coexist with cash, it would not be surprising if physical central bank money is partly replaced by digital central bank money.