A. Brief summary
* With the opening of central bank accounts to everyone there will be no more need for commercial bank deposits and consequently for these banks itself.
* The digital euro can create a perfect and beautiful version of sovereign money and consequently the right to privacy (esp. in the form of the anonymity of payment) will have no justification anymore.
B. Long version
This is a purely subjective intellectual game on possible impacts of the digital euro on the citizens and the commercial banks in the euro area. I am literally playing devil’s advocate in the figurative canonization of the digital euro.
My argumentation is based on the speeches, interviews and publications which you can find on the ECB Internet site (https://www.ecb.europa.eu/euro/html/digitaleuro.en.html), btw, it is an excellent compilation and source of knowledge!
Please keep in mind, that according to the ECB
“a digital euro would be introduced alongside cash” and “it would not replace it”.
II. The disappearance of banks and the anonymity in 7 steps
1. Step: A wonderful vision
The digital euro aka central bank digital currency (CBDC) could become a form of central bank money handled through electronic means and accessible to us, the people.
The vision and ipso facto the promise is that the euro area will get an efficient, secure and modern central bank money. Every citizen could use this digital currency to pay without using cash; a perfect means of payment for the digital era. As it can improve the financial stability of our currency we will love it.
For the government the upside would be a better control of illicit payments, esp. money laundering and terrorist financing.
End of course, in the events of global pandemics, every citizen and company could get immediately access to helicopter money. Everybody will win. “Seven at one blow!”, as Grimms would say.
2. Step: The tool, a CBDC account for everyone
To achieve these goals and to issue the digital euro the ECB could give literally everybody the access to a CBDC account. It would be an electronic form of deposit account with the ECB. At the moment only special clients can get such account (esp. Commercial banks). It will be of course only an option and not mandatory. But imagine you can open an account with a bank or with the ECB. Who will have the better image of solvency? Whom will you trust?
3. Step: Cracks, the small side effect
The other side of the (digital)coin could be it effect on the commercial banks.
What could be the new role of commercial banks? Think about it for a second …
Provider of bank account? * Nope; you will definitely choose the provider with the highest possible financial power, the ECB.
Provider of saving account? * Are you kidding? This was a good one.
Role of intermediary? * Why would you want to pay an extra fee?
Provider of loans? * Please, think twice! … Yes, you get it. KfW is the most important funding source in the German capital market. If you are student, then you probably already have a low-interest KfW Student Loan Programm. Companies, public institutions and international financing, no problem. Please choose your custom-made programme by the state-owned (development) bank.
Farewell and best of luck …
4. Step: The self-fulfilling prophecy
The vision aka the promise at this moment is, that the digital euro will save the world, at least the euro area. And in the end we could have a world with only digital central bank money. A beautiful world with no recession, no financial crisis, no currency devaluation, no unemployment, and …..
It is a self-fulfilling prophecy beacuse:
the starting point is „a decline in the use of cash in the economy“. Really? Yes and no.
Only in a footnote you will find this explanation:
„Although this trend is currently not observed in the euro area as a whole, it is emerging in some EU Member States and could spread further and be accelerated by extreme events, such as the outbreak of COVID-19, which cause a shift in payment habits (see Scenario 5).“
You have to embark on a long journey to find the ominous „some EU Member States“ (aka the Netherlands). Really? Yes.
In the euro area as a whole, cash is still used for the majority of payments. But you want to set the stage for the change then you have to …
5. Step: A dream will come true aka the perfect sovereign money
As we know (see above) we will get a digital euro. Can this become a perfect sovereign money? Think for a second and imagine this:
- You control the whole amount of money in circulation.
- You know where the money is, all of it streams and transformations. Who is spending it, when and for what products & services.
- You can perfectly boost the economy; or at least these parts of it which really need your help.
- The economy seems to overheat, no problem.
- Another pandemic, no Problem. Now you have a nice tool to distribute your helicopter money.
- And so on …
6. Another cracks, the main side effect
We will get access to a safe form of digital money in the fast-changing digital world. This will enable instant and cost-efficient payments throughout the euro area.
But to fulfill the main effect of the promise the amount of central bank money issued in the form of digital euro it has to be always under the full control of the ECB.
To get the full speed we need to remove all the small speed bumps. The anonymity of payment has to be ruled out! Cash has this (illicit) side effect that it allows privacy in payment transactions and the possibility to be used outside the ECB infrastructure. Therefore there will be no digital space left for such anachronism like anonymity of payment.
But bear in mind, that as a loyal citizen you want to help to combat the financing of terrorism, tax evasion and anti-money laundering.
7. The end: Your Choice.
Now, make your choice. Which pill do you want to take? The blue or the red one?