"We envisage a digital euro as a digital form of cash that can be used for all digital payments, free of charge, and that meets the highest privacy standards. It would coexist alongside physical cash, which will always be available, leaving no one behind."
— Christine Lagarde, President of the European Central Bank
Central banks will issue digital currencies and we can't stop them. But we can educate people about the tyranny that central bank digital currencies represent. It's our moral duty.
The European Central Bank released a report on Wednesday with the conclusions of the investigation phase of the digital euro. I've read the report so that you don't have to. Keep reading to find my conclusions.
The press release is here and surprise, surprise, they can't sell you the digital euro without gaslighting you.
The press release outlines the timeline for the launch of the digital euro:
- Investigation phase: October '21 - October '23 just concluded
- Preparation phase: November '23 - November '25
- Launch phase: no dates provided. I assume it will be during 2026
The European Union needs to create a legislative framework for the digital euro and the design outlined in the report will be adjusted as needed to comply with this framework.
The ultimate goal is to setup a digital payments infrastructure that is fully captured and controlled by the European politicians.
The digital euro is not a store of value. It's only a means of payment.
When you need to lie to justify the project...
The design envisages the digital euro as a digital form of cash that could be used for all digital payments throughout the euro area. It would be widely accessible, free for basic use and available both online and offline. It would offer the highest level of privacy and allow users to settle payments instantly in central bank money. It could be used from person to person, at the point of sale, in e-commerce and in government transactions. No digital payment instrument offers all these features. The digital euro would fill that gap.
Bold highlights are mine. Please raise your hand if you can think of a digital payment instrument that exists today and offers all these features.
Off course, there is one benefit that the digital euro offers and Bitcoin doesn't but the press release conveniently omitted it even though it's listed in the report:
risk-free (as money issued by the central bank)
The ECB will select providers to build the platform and necessary infrastructure as part of the preparation phase that starts now.
Payment Service Providers vs Banks
Payment Service Providers (PSPs) will have the direct relationship with consumers. They will create the account, provide the application used to manage funds, make, and receive transactions.
You will be allowed to have only one digital euro account. You can move your account from one PSP to another requesting a portability (like moving your cell phone service from one carrier to another).
PSP will perform KYC procedures during the onboarding process and validate transactions (including AML/CFT checks) at execution time.
PSPs will hold central bank money to interact with commercial banks and central banks.
This is what happens when you transfer euros from your commercial bank to your digital account:
- Money is moved from the central bank account of your commercial bank to the central bank account of your PSP
- The central bank credits the euros from the central bank account of the PSP
- The digital euros are added as an asset to your account
- The digital euros are added as a liability to the balance sheet of the central bank
Your digital euro account is managed by the PSP but it is held by the central bank. Your digital euros are a liability on the balance sheet of the central bank and settlement of transactions with digital euros is done by the central bank.
The ECB doesn't want a run on commercial banks so there is a legal limit on how much of your money you can convert to digital euros.
The ECB is creating a digital euro but will keep it on a tight leash to protect the commercial banks.
You don't need to link your commercial bank account to your digital euro account but linking it will be highly encouraged by the system:
- You can make a payment in digital euros for an amount that is higher than what you have in your wallet IF you have a linked commercial bank account. The extra money is automatically withdrawn from your bank account
- If you receive a payment that takes your digital euros balance beyond the legal limit, the excess is automatically dumped to your bank account
Privacy
The digital euro would make data protection a priority. The Eurosystem would not be able to see users’ personal data or link payment information to individuals. The digital euro would also achieve a cash-like level of privacy for offline payments.
When the ECB says the highest possible privacy, it means the highest possible based on the legislation that will regulate the digital euro. Privacy is a configuration setting to be tweaked based on the wimps of politicians. And if current actions are to be used as reference, you will have no privacy.
Let's unpack the ECB statement above.
"The Eurosystem would not be able to see user's personal data or link payment information to individuals."
The Eurosystem are the central banks of the respective countries of the Eurozone plus the European Central Bank. They will settle all transactions and hold your account but your identity will be anonymized
"The digital euro would also achieve a cash-like level of privacy for offline payments."
This is subject to what politicians decide and as we already know, they want to know everything you do.
Today, your euros are a liability on the balance sheet of the commercial bank you work with. Digital euros will instead be a liability on the balance sheet of the central banks.
Data available to the Eurosystem would be limited to what is necessary to perform critical digital euro-related tasks within the regulatory framework and would also be pseudonymised.
Again, bold highlights are mine. What will be critical tasks in the future? Will that include determining if you have exceeded your CO2 quota for the month? And what does pseudonymised means? The ECB is already giving you the answer:
Privacy and data protection need to be balanced with other public policy objectives, in particular anti-money laundering and combating the financing of terrorism (AML/CFT) and combating tax evasion. In addition, open banking can be facilitated by the sharing of private data. It is up to co-legislators to determine where to establish the appropriate balance amongst these objectives. A digital euro would comply with the legal framework in place at the time of its potential issuance.
Bold highlights again mine.
According to the report, the PSPs are the ones during the heavy duty surveillance. Every payment includes an authentication process where the PSP needs to verify your identity before validating the transaction.
Offline payments
The digital euro will support low value offline payments (without Internet connection) through an offline wallet that relies on the secure element of your device. These peer-to-peer payments will use technologies like NFC or QR codes.
The offline wallet will be separate from your online wallet. You need to fund the offline wallet to do peer-to-peer payments. You will also have a maximum amount of euros allowed in the offline wallet with this amount being a subset of total euros you're allowed to hold.
The key here is what do the politicians consider low value.
Already the ECB is caveating the privacy of offline payments:
The exemption of offline digital euro payments from certain AML/CFT obligations would only be possible if the co-legislators find it consistent with the usual risk-based approach to apply such exemptions.
Governments and businesses
Government are not allowed to hold digital euros. They can use digital euros to make or receive payments and any received digital euros are automatically transferred to their regular commercial bank accounts.
Don't be surprised if the launch of Universal Basic Income is coordinated with the launch of the digital euro to encourage adoption.
Businesses will have a digital euro account to process payments but they will NOT be allowed to hold digital euros either. Payments received will be automatically transferred to their traditional bank accounts to help them manage their liquidity.
The ECB is so focused on the max holding limit and zero holding limit for businesses that they even suggest having a third party aggregating transactions for the day if the business doesn't want to transfer money to the bank on a per transaction basis and instead they want to do it daily. Unnecessary complexity for the sake of preventing bank runs.
PSPs will not charge users transaction fees. Instead, they will charge businesses, just like VISA and Mastercard do today.
Current payment solutions are toast
The Venmos and Paypals of Europe are toast. They will need to become PSPs to survive.
Today, there is a Venmo for Spain, another one for France, another one for Italy, etc. The digital euro opens up the possibility for one of these payment companies to reach European scale by using the digital euro but businesses will need to clearly show the option to pay with digital euros and so the incentive to operate with these private payment companies instead of with your PSP will be very limited.
Same applies to Paypal. Amazon in France may still offer to checkout with Paypal France, but it will also show pay with digital euros so why would French people rely on Paypal France anymore? Amazon is also better off having a single digital euros account for France and dis-intermediating Paypal.
On top of that, the EU will develop its own app to manage your digital euros as well as a physical payment card linked to your digital euro account.
This app will be independent of the apps that PSP may develop. You still need to open the account with the PSP and your account will be subject to the rules of the PSP but you can manage the account through this free app if you want to.
Notable notes
Recommendations
Sovereign Matt
Sovereign Matt was an early adopter at Nostr and has contributed to the development with his icons for Nostr.
You can follow him at
.What did you think of today's newsletter?
Your feedback helps me create the best newsletter possible for you.
Please leave a comment and checkout comments from other subscribers and readers. I love hearing from the Bitcoin For Families community ❤️ 🙏🏻
See you again next week! — Alejandro
This newsletter is for educational purposes. It does not represent financial advice. Do your own research before buying Bitcoin.