The Digital Euro: Blessing or Curse? Part 1 – Background, Rise, and Benefits

This is Part 1 in a series of 2 articles about the digital euro. This part covers the background and rise of the digital euro and its potential benefits. Part 2 discusses the drawbacks, risks, and possible next steps (you can read Part 2 here).


The world of finance and payments is undergoing a revolution with the rise of digital currencies. One of the most discussed developments is the possible introduction of a digital euro by the European Central Bank (ECB). This virtual version of the traditional euro promises numerous advantages but also raises questions and concerns.

Partly due to the sharp decline in the use of cash, central banks worldwide are diligently working on so-called 'central bank digital currencies' or CBDCs. China took the lead in this, and Sweden also followed (cash has largely disappeared in northwestern Europe). Other countries were initially skeptical but are now on board. The BIS (also known as the central bank of central banks) recently reported that 93% of central banks worldwide are now working on a CBDC in one form or another. What does this entail, and why are they doing it?

Difference between private and public money

The digital euro is an electronic form of public money, the coins and banknotes in our wallets. This is different from the digital money most of us have in one or more bank accounts, as that is not public money but private money managed by commercial banks. Public money (such as banknotes) is backed by the state, while private money is not (except for the deposit guarantee scheme). If a bank goes bankrupt, account holders with balances above 100,000 euros are likely to be affected.

Before the arrival of the digital euro, the Dutch central bank (DNB) is following the path outlined by the European Central Bank (ECB). On the advice of the ECB, the European Commission published a draft proposal for the introduction of a digital euro on June 28, 2023.

Expectations surrounding the digital euro are high in some quarters. According to Christine Lagarde, the President of the European Central Bank (ECB), the digital euro could even 'transform society as a whole.' Others, however, are very skeptical. In July 2022, the Minister of Finance sent a letter to parliament outlining her vision on the design choices. When the Dutch parliament debated the new currency in November 2022, there were demonstrations outside with slogans like 'Don't turn the Netherlands into China.' This is a reference to the surveillance state that China has become, with a social credit system and little to no privacy safeguards for its citizens. The reasons for these concerns will be explained in Part 2 of this article. But if we believe the proponents, including De Nederlandsche Bank, there are mainly benefits, and the fears are unfounded.

Five benefits of a digital euro

Digital central bank money can bring various advantages (provided it is designed correctly). Advocates mention:

Financial Inclusion: The digital euro can help address the problem of financial exclusion. People without access to (increasingly scarce) bank branches and other vulnerable groups could also participate in the digital payment system, promoting economic equality. 'Offline' payments should also be possible (or remain possible, compared to cash).

Ensuring access to public money as the use of (physical) cash continues to decline.

Control Over the Shadow Economy: The use of a digital euro could make it easier to trace illegal transactions and tax evasion. The digital infrastructure can serve as a mechanism for stricter control of economic activities.

Monetary Policy and Stimulus: The introduction of the digital euro would enable the ECB to implement more effective monetary policy. In times of economic downturn, the central bank can implement direct stimulus measures by introducing digital euros into the economy. (This is sometimes referred to as helicopter money).

Strengthening European autonomy and reducing external dependence in European payments.

What are the chances that the promised benefits of a digital euro will be realized? And that the concerns of opponents, especially regarding privacy, prove to be unfounded? Our central bank describes the intended currency as follows: 'See the digital euro as a digital version of the banknote, with as many characteristics of cash as possible. Exchangeable everywhere and at all times, accessible to everyone and easy to use. For normal payments: from me to you, for in-store payments, but also online throughout the entire eurozone.' At the same time, addressing the privacy aspect: 'We are exploring whether digital payments below a certain amount can remain private. This requires adjustments to anti-money laundering legislation.'

Another important argument is that with the rise of 'Big Tech' in the payment market, we are increasingly dependent on non-European players for the vital role that European payments have. Both the ECB and the DNB point this out. This is certainly a cause for concern, but it is currently unclear how a new currency could be prevented from simply being incorporated into the existing payment solutions of external players. In this light, it is at least puzzling that one of the five parties selected by the ECB to build a prototype of the digital euro is the American Amazon.

And so there are more perplexing aspects in the dossier surrounding the digital euro. What these are, and why opponents are so skeptical, will be explained in Part 2 of this article: Drawbacks, Risks, Possible Next Steps, and Conclusion.

Do you want more information or have questions?

Do you find this interesting or want to participate in the discussion about CBDCs in general or the digital euro in particular? Then contact Paul Helmich via Highberg or via LinkedIn.

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