Digital Euro: We Need Facts, Not Propaganda (Part 3)

The technological component of a digital currency offers possibilities that do not exist with physical cash. Think of programming, which lobbyists are vehemently contesting as far as the digital euro is concerned. But the question is not whether the ECB programmes the euro. The digital currency itself creates ideal technological conditions for programming by third parties: whether in the Internet of Things or in the form of smart contracts.

 

"The digital euro will not be a programmable currency. The Eurosystem will issue currency, not purchase documents. The digital euro will always be convertible 1:1 with other forms of currency, including cash and bank deposits". Denis Beau, Senior Deputy Governor of the Banque de France, recently attempted, in a speech in Montpellier[1] , to sweep aside a critical argument that is often raised. As in the first part (cash)[2] and the second part (interest)[3] , we take up this statement and add a few additional facts and aspects.

Political restrictions

The ECB defines programmable money as "a digital form of money used for predefined purposes, such as coupons, with limits on where and when it can be used and by whom."[4] Lobbyists such as Denis Beau claim that the Eurosystem will not restrict the use of digital euros.

Let's go back to the facts: the digital euro is a central bank currency with the characteristics of cash. Beau's argument is incomplete and insufficient to allay fears. The question is not whether the ECB is issuing money that has already been programmed. It cannot and will not do so in the foreseeable future. The question is whether the management of consumption behaviour - whether in terms of time or quantity - will be facilitated by technological conditions. So will the digital euro programme our consumer behaviour?

This issue needs to be considered from two angles: the political and the economic. From a political point of view, it is not the ECB that sets the framework for managing consumer behaviour, but the Commission and the Council. Think of the ongoing interventions in the European energy market; the interventions in Member States' healthcare systems under Covid-19; the sanctions against Russia, Belarus and Iran. Think of the provisions against money laundering, the monitoring of supply chains and the ceilings on cash. And think of the fact that financial institutions, banks, estate agents, wealth management services and retailers have recently been required to act as "doorkeepers" and participate in the "detection of suspicious activity". There are countless examples of political programming of our consumer habits. The argument of total freedom of choice is therefore worthless from a political point of view.

Integrated payment

Restrictive political measures are counterbalanced by rapid technological development. There is no doubt that the digital euro makes it possible to programme financial flows through the use of intelligent contracts. The integration of delivery processes and payment transactions in real time is thus becoming a reality.

We know that machines can communicate with other machines. It is also possible, from a technological point of view, for machines to pay each other for their services. This is known as machine-to-machine payment. Payment is triggered by the machine, without the need for human intervention.

As part of a pilot project, the truck division of a German automotive group tested a fully automated payment process. Delivery and payment were carried out fully automatically on an electricity charging point and a truck system based on "Cash on Ledger" technology.[5]

With the Internet of Things, we can expect the integration of the payment process into the fully automated processing of commercial transactions to become a reality. We will be driving cars that will carry out the payment process as autonomously as our fridges that will carry out replenishment orders for us. Why should the State give up these possibilities? Every tax resulting from a commercial transaction could land in real time on the tax authorities' digital accounts!

So let's be careful: no, the ECB will not be issuing a programmed monetary base. But yes, there is more than one reason to fear that by broadening the digital base, our consumer behaviour will be much more programmed by political and economic interests than it is at present. It goes without saying that our transactions with the digital euro will be "identifiable". We'll be looking at this danger in the fourth and final part of our mini-series.

This article was first published in Courrier des Stratèges on May 16th, 2024.

[1] https://www.bis.org/review/r240430a.htm

[2] http://2f9bb33b.easyname.website/blog/the-digital-euro-we-need-facts-not-propaganda-part-1

[3] http://2f9bb33b.easyname.website/blog/the-digital-euro-we-need-facts-not-propaganda-part-2

[4] https://www.ecb.europa.eu/euro/digital_euro/faqs/html/ecb.faq_digital_euro.fr.html

[5] https://digitalzentrum-augsburg.de/wp-content/uploads/2022/02/M2M-Payment.pdf