The Digital Euro and the Big Game

_ Dr. Hendrik Hagedorn. Berlin, 17. January 2024.*

The European Central Bank is working on the introduction of its own digital currency. The digital euro will also completely change our current monetary system.

The digital euro is coming. That much is certain. The assumption that the draft law recently presented by the EU Commission will fail somewhere is just as absurd as the idea that the ECB will cancel the project after the second test phase that has now begun.

So the only open question is what exactly is in store for us, although this is again relatively foreseeable according to the advance spectacle. In the coming years, as always, there will be alarmists and appeasers, there will be those who say “the gates of hell are open” and there will be others who tell us “please move on, there’s nothing to see”. And as always, the truth will lie somewhere in the middle, with the appeasers likely to be right in the short term and the alarmists right in the long term. But this is not so much due to the digital euro alone.

First of all, the digital euro is simply something that the zeitgeist is calling for. In fact, the central bankers of this world are not wrong in thinking that it is the most normal thing in the world for a central bank in the digital age to develop a digital means of payment that offers the same security as cash, but allows “digital cash payments” via an app from a computer or smartphone and also introduces new functions such as automatic machine-to-machine payments. Ultimately, something similar to PayPal, only more programmable and universal, because it has the status of a legal tender, meaning that everyone is obliged to accept it except for small businesses and natural persons.

At this point, “the same security as cash” initially means that the entire public will be able to obtain their digital money directly from the currency monopolist. This has not been the case until now. This is because the (also digital) money in the current account is not real money in principle, but merely a contract between a commercial bank and a customer to exchange the corresponding credit balances into “real” central bank money, i.e. cash, at any time. The digital euro therefore has a completely different legal status to bank money and provides a certain degree of security, as there is no risk to the customer that a commercial bank will not be able to meet its redemption obligation.

Consequences for the monetary system

However, the consequences of this step are far-reaching, much more far-reaching than most people realize today. This is because the ECB is entering into direct competition with all digital payment providers such as Visa, Mastercard or PayPal and, above all, with the traditional transfer business of commercial banks. And once the initial upper limit of 3,000 digital euros per person has been dropped and financial transactions are processed on a large scale in digital euros, eliminating all financial intermediaries, then the entire traditional deposit business of banks will be obsolete. Banks and other financial service providers will then either have to radically change their business models or they will disappear from the market. And that means that the digital euro will not only change the payment system, but the entire architecture of the current monetary system will become obsolete.

But that’s not all. The blockchain-like technology on which the digital euro is based also allows the integration of so-called “smart contracts”, i.e. self-executing contracts that are automatically concluded when predefined conditions are met, resulting in countless applications in the monitoring of supply chains or in the field of mobility. And even the registration of a vehicle or notarial transfers could be revolutionized, as blockchain goes hand in hand with the digitalization of values. Everything that previously required a document could be stored in the blockchain in future: contracts, securities, ID documents and much more. Machines could also be equipped with digital identities that enable them to carry out value transactions. And a digital currency is the key to linking these things together and getting this new economy rolling.

All of these developments can rightly be viewed critically. You can consider digitalization to be too extensive overall, you can also regret the death of city centres, but if you look at the existing internet economy and the associated globalized shipping and delivery economy, you cannot deny that society is developing in a direction in which there is justification for a digital currency. If you think about this development further, for example in the direction of an increasingly fully automated economy, an Industry 4.0, if you consider how much transaction costs in this new economy can be reduced in almost all areas by eliminating middlemen, then it is perhaps even imperative that a corresponding interface is created.

Cash in danger?

But what does this mean for people and their natural measure? Is this development not already the much-feared “Great Reset”? Is the linking of money, identity, rights and data at an institution like the ECB a good idea? Isn’t there perhaps a hidden agenda that goes much further than what is officially announced? Is there a threat of a Chinese-style surveillance state and possibly even more? And won’t this unbridled digitalization ultimately even lead to dehumanization if identity is only understood as a digital identity in the blockchain and can even be transferred to machines?

The answer to these questions depends on two things. Firstly, the extent to which existing structures are displaced and secondly, how the new structures will be designed.

The nightmare of all liberty-minded people has long been the abolition of cash. After all, if the digital euro not only supplements physical cash, but completely replaces it, then this would certainly have what it takes to secure a repressive agenda in three key areas. A fundamental problem of the fiat money system is its latent instability, which stems from the fact that all commercial banks are latently insolvent. If enough customers withdraw their money at the same time, i.e. convert their sight deposits into cash, every bank is immediately bankrupt, as they have all created more money through their lending than they have reserves of central bank money. It is obvious that there are substantial interests in safeguarding this fraudulent system. The abolition of cash would be the solution. Secondly, in certain circles there is always the idea of pushing interest rates even further below zero in the event of a crisis than was already the case in the past in order to tax people even more and drive them into consumption. Only the existence of cash has prevented this so far, because if interest rates become too negative, people could withdraw cash, and we would be back to the first problem. And thirdly, cash cannot be used as an instrument to control behaviour, for example in conjunction with a social credit system, but a digital euro could. If it were designed accordingly, it would be easy to introduce quotas and limits that would dictate to each citizen the extent to which they are allowed to spend their digital euros and for what purpose. Unwelcome citizens could even have their money taps turned off directly. The digital euro would then not be money, but a voucher system.

The digitalization of our society is progressing inexorably. Hardly any area can escape this development. Online banking and card payments have long been part of everyday life for many people. Ultimately, it is only logical that digitalization is also affecting our monetary system. The digital euro (and other digital central bank currencies) will arrive in the next few years. Many people therefore fear the abolition of cash and an increase in state control.

“Cash is printed freedom” say those freedom-minded people, and to a certain extent that is true. But is cash even up for discussion here? If you look at the Commission’s draft bill, you will see that it emphasizes the voluntary nature of people being able to convert their money into digital euros. And there is currently no talk of abolishing cash. On the contrary, the ECB recently even proposed tightening the obligation to accept cash by no longer allowing stores and service providers to exclude cash as a means of payment. As long as no one is forced to use the digital euro and as long as no one bans physical cash withdrawals instead of digital transfers, the nightmare will remain a nightmare and not a reality.

The major Achilles’ heel of the alarmists is that they predict the crisis far too early and far too extremely. Although the abolition of cash would of course pave the way for financial repression, the central banks are not currently planning to abolish cash at all. The threat to freedom that some are talking about is real, but it is much more subtle.

Because you don’t have to use the digital euro to see cash being pushed back. The biggest enemy of cash is the consumers themselves. Of course, banks have also played their part by closing branches and reducing the number of ATMs. It is also a fact that many governments are financially supporting global initiatives to push back cash. Some have even suggested that the series of attacks on ATMs has been tacitly welcomed in certain anti-cash circles. But these are hardly the decisive factors. What is decisive is the fact that countless customers find it convenient to pay by debit card, ApplePay or credit card, that they visit stores less and less often, that even in the supermarket they now regularly pay by cell phone and that a few “pioneers” have already voluntarily had a chip implanted in their wrist to carry out their banking transactions. The traceability of their transactions does not bother them in the slightest. This broad front of actual cash abolitionists are the real opponents of cash. Convenience has always been one of the greatest opponents of freedom.

It is just as unnecessary to use the digital euro to state the emergence of the transparent subject. Because these efforts are already underway, specifically under the heading of so-called “climate money”, for example, which provides for direct state transfers to all German citizens under the ludicrous pretext of climate policy. The German government is pushing ahead with this plan and is already in the process of creating an opportunity for direct state payments to the population, for which it is pushing ahead with the consolidation of bank data, tax data and many other personal data. If you consider that there were still mass demonstrations against a census in the 1980s, then you can see how far we have come in this respect, including in terms of popular acceptance. But when it comes to money, especially in a now largely impoverished population, who will not willingly deposit their IBAN in order to receive a social transfer of any kind?

And when it comes to surveillance, the dystopia that many associate with the “Great Reset” is already a reality in many places. The smartphones that everyone carries around with them these days are already surveillance tools. It is well known that location data can be tracked, that conversations can be tapped and that even rooms in which a cell phone is located can be monitored. In a way, cell phones already represent a person’s virtual identity, as they are used permanently for identification and authentication. Online bank transfers, for example, can now only be authorized using a cell phone and not a desktop – provided you still have a bank account and it has not been terminated by the bank due to political views, which is already happening regularly.

The digital age

Whether and to what extent the digital euro opens this door to hell wider than it already is depends on how it is designed and, in particular, whether it is structured as a token-based or account-based currency. In the latter case, each transaction is accompanied by an identity check and all repression options are available. In the former case, however, only a “private key” is required for authorization, and the central bank does not have the means to assign a transaction to a person with certainty. So if the digital euro were designed in such a way that the ECB could not even record the identity of the persons involved – and this is how it is currently being discussed – then it would be a step forward in terms of data autonomy, as there would then be a digital legal tender that can be handled anonymously. That would be a gain for people’s freedom!

The debate is therefore complex and is actually only just beginning. Despite all the skepticism towards institutions such as the ECB, we must not forget that they still have a reputation to lose with large sections of the population. Their raison d’être depends on them still being able to say “We’re the good guys!”. More likely than a scenario that envisages programmable money with complete surveillance and all possible restrictions is therefore a scenario in which precisely this does not exist and the advocates of the new world order can say at any time: “Look, it was all a conspiracy theory and there is therefore no reason to doubt other reforms, such as the introduction of a digital identity that only provides for EU citizens but no longer national affiliations.” In this respect, defusing the digital euro would again be a means to an end. It’s all a big game after all.

But the future cannot be stopped. It is undisputed that the digital age has begun and, like every age, it brings light and shade. And freedom must be defended and won at all times and under ever-changing circumstances. It is always under threat and can always be regained. The task of free humanity is to assert itself in this age too. The conditions are not necessarily favorable, because the prosperity to which they are accustomed has made them soft and dependent, and it takes some insight to see through the complex structures that are forming. So this is where the real danger lies, which could ultimately prove the alarmists right. But this is not due to the digital euro per se.

* First published in the Austrian journal “FREILICH”.

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