The European Union should carefully consider the consequences of issuing a digital euro, even before it thinks about how this money will be issued. This statement comes from a lobby group of major financial service providers in the EU: the IFF.

The reaction is a response to the consultation that the European Commission did: a request for input from all kinds of stakeholders. The IFF (Institute of International Finance) consists of banks, payment providers and accounting firms. Their main criticism is that the EU seems to have already decided on a digital euro and only wants to know how to introduce it. Whereas the primary question should be: do we even want such a form of money?

What is the digital euro?

Our money is already largely digital, right? So what's new about central bank digital currency (CBDC)? One difference is that this money, should it be introduced, is issued directly to citizens by the central bank. The citizen has an account into which the central bank can deposit directly. This is convenient but also a bit creepy,because it potentially leaves little in the way of privacy of your spending. It is also conceivable that this money is 'programmable': that the government, for example, wants to determine what you can or cannot spend your money on. It is also conceivable that a negative interest rate could be set on such money.

All these potential negative side effects of central bank money are perhaps not even the main reason why financial institutions have their objections. After all, they have their own interests. A central bank that manages money directly from citizens.... didn't we have a service provider that is now making money from that? Right. It is the banks that see their market position threatened. The head of the IFF also admits this in so many words: Getting rid of the banks’ role “would be extremely detrimental to financial stability and the economy ... you can't exist without the banking system.”

A threat to crypto?

Some people wonder if central bank digital currency would be a threat to crypto. But the difference between what Bitcoin in particular does and what central banks can do could not be greater. It's true that banks may borrow technology from crypto in due course - that doesn't mean Bitcoin's fundamental properties can be copied. Like our current money, central bank money can be created at will and ad infinitum, unlike the 21 million max that will be the total amount of Bitcoin in circulation. The word "central" in CBDC is also significanthere. The introduction of central bank money might just make Bitcoin more popular: after all, it is the escape hatch from a monetary system in which power is becoming increasingly centralized.