Central bank digital currencies (CBDC) continue to be a hot topic globally. As the discussions around CBDCs continue to intensify, let’s explore seven potential issues with the digital euro.

Privacy Concerns

There is widespread concern that a digital euro could be traceable. This idea that governments and central banks could monitor transactions would limit financial anonymity. While the European Central Bank (ECB) has promised some level of privacy, full anonymity (like cash and bitcoin) seems unlikely.

Risks of Government Overreach

Throughout what the ECB has called the preparation phase – which will run through October of 2025 – there has been worry that governments could impose restrictions (i.e. spending limits or expiration dates) on digital euros.

Speculation abounds that authorities could use it for financial surveillance or freezing assets in more extreme cases. The possibility of negative interest rates on digital euro accounts has the potential to push spending instead of saving.

Cybersecurity & Operational Risks

A digital euro would be a prime target for hackers and cyberattacks. Ensuring that the system is resilient, secure, and accessible at all times would be a massive challenge.

As with any dependence on digital infrastructure, power outages or system failures could disrupt access to money. Concerns were further heightened by an outage in a major European payment system that likely left trillions of euros in limbo for hours.

Implications on Monetary Policy

CBDCs are a direct liability of the central bank. Since the central bank has the power to issue currency, this means that the central bank can essentially create more “digital euros” whenever it chooses. This could give the ECB more direct control over money supply and interest rates, and has the potential to create instability in financial markets.

Limited Adoption & Usability

Since many Europeans already use digital payment systems like credit cards and mobile wallets, there are questions about whether the digital euro is necessary. If it offers no major advantages over existing options, people might not use it. Merchants might be reluctant to accept digital euros due to potential concerns over technical or regulatory burdens.

Impact on Commercial Banks

If people move large amounts of money from commercial banks to digital euros, banks could face liquidity shortages. This could in turn lead to higher interest rates on loans or force banks to change their business model. In a financial crisis, people might rapidly shift to digital euros, worsening bank runs.

Cross-Border Issues

If non-residents of the European Union hold large amounts of digital euros, it could affect currency exchange rates and financial stability. There’s also a potential for different EU countries to have varying regulations, which would complicate implementation.

How CBDCs Have Already Impacted Personal Freedom

China

China has been one of the earliest testers and adopters of a CBDC, the Digital Yuan. Its rollout revealed several ways that a CBDC can be used by a government to impact the personal freedom of its residents. First, the Digital Yuan is fully traceable, meaning the Chinese government has the ability to track every transaction. This potentially allows them to limit purchases and monitor political dissent. The Chinese government has also experimented with having the Digital Yuan expire within a certain time period, which limits financial autonomy. While they are not officially linked, there are also fears that the Digital Yuan could be linked to China’s social credit system.

Canada

While Canada does not yet have a CBDC, a situation involving digital finance unfolded in 2022 during the “Freedom Convoy” protests. The Canadian government evoked the Emergencies Act, allowing them to freeze bank accounts and crypto wallets linked to protestors and donors. This demonstrated a government’s ability to weaponize digital infrastructure to restrict access to funds for its residents.

My Thoughts

As an advocate for free speech and free markets, I am firmly against the use of Central Bank Digital Currencies.

If governments continue to impose these restrictive monetary applications on their people, I believe this will only strengthen the value proposition for something like Bitcoin, which eliminates the need for government permission when using your own money.

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