Across the European Union’s various legislative institutions, there have been a number of attempts in recent years to create a bill with the intention of laying the legislative groundwork for the development of a digital euro and Central Bank Digital Currencies, or CBDCs. CBDCs are centralised, state-backed digital currencies that would, theoretically, be a ‘less risky’ alternative to traditional crypto-currencies and digital tokens, like Bitcoin.

This is a highly controversial idea. Every time it pops up in the news cycle, it ignites fierce debate. It is easy to see how the argument can be made that this is a top-down policy from lawmakers which looks good on paper but brings a number of serious consequences when implemented in practice. Survey data suggests people are concerned about this, with a recent Bundesbank survey in Germany discovering that only half of Germans could actually see themselves using a digital euro.1

The European Central Bank’s interest in a digital euro is reminiscent of when the People’s Bank of China announced that it would be launching a digital yuan pilot programme in 2016. Their CBDCs were deployed in the cities of Suzhou, Chengdu, Xiong’a, and Shenzhen before being expanded into neighbouring provinces in 2021. The Chinese government has since cracked down heavily on crypto-mining and domestic crypto-trading in China, going so far as to ban Chinese financial institutions from offering any services related to cryptocurrency.

It's no coincidence that China was so eager to criminalise the use of cryptocurrency after launching their own state-backed alternative, and it’s no coincidence that so many European politicians and central bankers seem to consistently ‘misunderstand’ why the demand for digital currency exists in the first place.

Although we typically tend to associate cryptocurrency with volatility, online scams, and organised crime, the importance of maintaining access to anonymous, decentralised currencies is in no way negated by these issues. It’s understandable that the European Union would want to be ‘ahead of the curve’ in regards to digital currency, in order to engage with international monetary policy in its entirety, but by entering into a digital arms race with an authoritarian state, the European Commission is putting consumer freedom at risk.

An outright ban on the use of cryptocurrency in the European Union is unlikely, but the adoption of a digital euro could pave the way for measures to be implemented that would make the use of cryptocurrency highly inconvenient. Exorbitant taxation on commercial transactions using cryptocurrency, or regulations concerning which businesses can accept cryptocurrency as a form of payment, and which ones cannot, spring to mind.

If the European Union adopts a digital euro, our only way to make transactions anonymously may be through the use of cash, and perhaps this wouldn’t be an issue, if the adoption of CBDCs didn’t put the future of cash at risk as well. While CBDCs might, at first glance, appear to be a convenient and optional tack on to our traditional monetary system, cash becoming obsolete is not unlikely (particularly in the aftermath of the Covid-19 pandemic, and the popularity of digital banking services such as Revolut).

When you possess very little cash and you can’t withdraw your digital euros, this also empowers financial institutions to implement negative interest rates that erode away at your savings. The widespread adoption of a digital euro could effectively put private financial institutions out of business, since the state could liaise with the consumer directly – meaning that consumers’ options will be dangerously limited.

The future of the Central Bank Digital currencies in Europe is still uncertain, but in a world where money is power, a digital euro would give governments the power to monitor all financial transitions and limit consumer freedom and privacy on a massive scale. When the state has a monopoly on financial services, the possibilities for curtailing personal liberty and increasing government surveillance are endless.

This article was written by Molly Kavanagh. Molly is an Irish writer and former deputy editor-in-chief of Motley Magazine. She now works as a communications assistant for an international NGO.