Tool of Tyrants or Means to Break Away from American Card Dominance?

As soon as the European Central Bank (ECB) announced the introduction of the digital euro, the project sparked significant interest. For some, it is a much-needed departure from the American card companies that control a large part of European payment traffic, while for others, it is yet another blow from the Brussels administration to citizens’ privacy, so it is not surprising that there are calls to enshrine the right to cash payments in the Constitution, as Slovenia did last year. Who is right and are they (over)reacting to the digital euro?

Supplement, not a replacement

If you ask ECB officials for an explanation, they will tell you that it is digital money issued by the Eurosystem – the European Central Bank (ECB) – and the national central banks of those EU member states that have adopted the euro, including Croatia. The digital euro would be a supplement to cash, not a replacement. The ECB’s idea is to offer another form of electronic payment alongside existing solutions from private card companies. It would be used alongside cash to respond to the growing consumer preference for fast and secure digital payments.

It would not kill cash – it would still be available in the euro area. In addition to it, other private electronic means of payment currently in use would also be available. Regardless of which euro-using country you are in, you could pay with digital euros at any occasion and at any moment: in stores, online, and between each other. You will not need an internet connection as payments can also be made offline.

In addition to reducing Europe’s dependence on private non-European payment service providers, the digital euro would simultaneously act as a counterbalance to their market dominance. Its introduction would create a platform that would facilitate payment service providers in offering their own pan-European payment solutions, making payments in Europe more competitive and innovative.

State-controlled Stablecoin

If you think that using the digital euro will leave a lengthy digital trail, the ECB claims it will not. Namely, identities will not be verified during transactions. Furthermore, in offline payments with digital euros, personal data related to the transaction would only be accessible to the payer and the payment recipient. So what is the digital euro? A kind of stable cryptocurrency like a stablecoin or primarily a payment system? Or both?

Tech entrepreneur and crypto enthusiast Boris Agatić says it is none of those entirely.

– The digital euro is not a stablecoin because it will be issued by the ECB with full sovereign backing, it will have a limit of three thousand euros in the account, and instead of blockchain, it will use centralized infrastructure. It is not a pure payment processor like Visa because it is money itself, not just a channel for transferring existing money. The most accurate description is a public central bank digital currency, a new category that combines the security of cash with the convenience of digital payments, explains Agatić.

From a crypto perspective, it is a centralized, regulated ‘state-controlled stablecoin’ – exactly what the American administration sees as a threat to freedom, while Europe views it as an advantage, adds Agatić.

Whether the digital euro is a threat or an advantage, we will have to wait a little longer for its launch, especially since the European Parliament is still at odds over the fate of this project. It was expected that the Parliament would adopt a regulation for its introduction by the end of 2025. In that case, it could be introduced as early as 2028, or at least three years after the regulation is adopted. However, that regulation is still awaited as things have recently become complicated.

Who is for, who is against

The European Parliament’s rapporteur on the digital euro from the European People’s Party, Fernando Navarrete, has been skeptical about the project from the start and requested a new proposal from the European Commission in early February. He seeks that the digital euro can only be used for offline payments as a ‘tokenized digital form of cash’. The current proposal for use in online environments is supported by socialists and democrats as well as the liberal Renew EU. According to Euronews, consensus is still being sought, and the two sides ‘agree to disagree’.

We remind you that after a two-year research phase, the ECB’s Governing Council decided to move to the preparatory phase, which began on November 1, 2023. It is focused on further development and testing of the digital euro in accordance with design decisions and technical requirements defined during the research phase. As part of the preparatory phase, the Eurosystem is conducting extensive analysis, testing, and experimentation.

According to Boris Agatić, the deadline for 2028 is still achievable.

– The deadline is technically feasible, but it requires a significant acceleration of the legislative process as the European Parliament has not yet set a date for voting on the regulation. The ECB has completed the preparatory phase and the technology is ready, but political will remains questionable. Countries that have already introduced CBDCs are recording a disappointing adoption rate of less than 0.5%, which Europe must avoid. Realistically, 2030 is a more likely deadline for broader application, and 2029 could only mark a limited launch of the system, assesses our interlocutor.

Many unknowns

It has long been known that nothing can be completed quickly in the European Union as it requires aligning the views of 27 member states, in this case, 21 eurozone members. However, MEPs should understand that this is a project that, in the current geopolitical circumstances, when its main ally is unfriendly to Europe, has a special place. In this context, Boris Agatić believes that the main advantage brought by the digital euro is Europe’s strategic autonomy, as currently, more than 69% of card transactions are processed by American companies.

– The digital euro reduces that dependence and enables resilience in geopolitical crises. Offline payments promise a level of privacy similar to cash, and free access ensures financial inclusion. On the other hand, the holding limit of a maximum of three thousand euros significantly limits usability compared to stablecoins that do not have such restrictions.

Centralized architecture technically allows for surveillance despite promises of privacy, and banks must invest between four to six billion euros to adapt their systems. For the Web3 community, the digital euro is a step towards greater state control of money, which is contrary to the principles of decentralization, lists Agatić the advantages and disadvantages.

Since the digital euro is still in the preparatory phase, with, as we see, an unclear horizon for its arrival, banks still do not know what preparations await them. The Croatian Banking Association has already indicated that it can be preliminarily expected that banks will need to adapt their payment and IT systems to support the distribution of the digital euro. This would include integration with the new infrastructure of the European Central Bank, adaptation of user channels, i.e., mobile and online applications, and the introduction of security and identity verification solutions in accordance with regulatory requirements. The cost of all this is still unknown.

Trump’s ‘no’ to the digital dollar

On the other side of the Atlantic, the stance towards the cryptocurrency issued by the central bank is completely opposite. The current American administration led by President Donald Trump has firmly rejected the very idea of a digital dollar. His administration explicitly banned work on the CBDC in January last year, considering it a tool of state surveillance that threatens citizens’ privacy.

Senator Mike Lee called it ‘a tool for tyrants’. Instead of a state digital dollar, America advocates private stablecoins tied to the dollar, which surpassed Visa and Mastercard in transaction volume (mainly for trading) in 2024, thus expanding the dollar’s dominance without state infrastructure, emphasizes Boris Agatić.

– The administration wants to make the United States the ‘crypto capital of the world’, and the CBDC would compete with the private sector and potentially destabilize commercial banks. Paradoxically, this approach allows for strategic vulnerability as China and BRICS countries are actively developing their own digital currencies to circumvent American financial dominance, emphasizes this expert.

When asked if he intends to use the digital euro himself, he answers affirmatively.

– Yes, I will use it selectively for smaller and everyday payments. At the same time, I will keep cash for maximum privacy and bitcoin and stablecoins for DeFi activities and international transfers and investments. The digital euro will not replace my crypto portfolio but will become an additional tool in my financial arsenal for specific situations. My main reservation is the holding limit, which makes it impractical for larger transactions or as a store of value, notes Agatić.

‘A tool of tyrants’, as described by the Washington administration, may be much better received among the general public than its critics hope. But whether it will be globally competitive enough given that it is born in the European consensus kitchen is a question for a special discussion.