The underbelly of Europe’s digital euro

The European Central Bank is developing a digital euro to compete with existing cashless options, aiming for direct, cost-effective transactions.

The European Central Bank (ECB) has been working on a digital currency for some time now; its “preparation phase” commenced in November 2023. This currency is meant to be the government’s alternative to existing cashless options such as credit cards, apps, cryptocurrencies, and bank transfers. People can use the digital euro to pay directly from a digital wallet, on a smartphone or computer, without involving a bank or payment gateway. Depending on the end device, the money can be transferred via Bluetooth, a browser extension or a smartphone contact.

The digital euro differs from other types of digital payment options because the ECB issues it directly. Indeed, this central bank digital currency is expected to be an infrastructure that the ECB manages, making it possible to process national and international payments between citizens and companies quickly and cost-effectively. It will also be used for micro payments, which are currently disproportionately expensive thanks to banks’ and payment-service providers’ conventional cost structures. The cost-neutral digital euro effectively allows for new business models. The ECB has thus presented this as a new, better alternative for citizens: free, anonymous, reliable. But this is not the truth about the purpose of digital currency.

Anyone who buys with cash has abstract wealth in the form of printed paper that changes hands. With paper money, the seller holds a state guarantee that the bill of exchange also counts as such wealth. According to Karl Marx, this money, which is “the universal substance of existence for all, and at the same time the common product of all”, is the “real commonwealth” of capitalist society. In this practically validated commonwealth, money is not an aid to production but its ultimate purpose: things are only produced if and insofar as they prove their worth in bringing money-value wealth into existence.

In such a society, in which buying and selling are not marginal phenomena but the form of its general metabolism, a temporary lack of money shouldn’t bring all social transactions to a grinding halt. Accordingly, banks have been granting loans long before there was digital access to personal accounts. What used to be the promissory bill is now a number in an app on your phone.

Anyone who pays by digital bank transfer, PayPal, etc. is already moving away from abstract wealth in the form of cash and towards digital certificates. PayPal therefore guarantees the seller that the buyer’s bank will provide her with the money to pay for the product.

This is the decisive difference from the digital euro: it will not be used to digitally exchange debt claims between different financial service providers that are intermediaries between buyers and sellers. Instead, it is a digital version of legally valid cash. In November 2023, the EU Commission clarified the digital euro will be open to all citizens and won’t be limited to settling bills of exchange in interbank transactions.

On the one hand, the digital euro is nothing but a collection of zeros and ones, bits and bytes, like the characters on our banking apps. On the other, we shouldn’t be fooled: this similarity doesn’t alter the fundamental difference in the political economy of the digital euro and debt to the bank. In contrast to the digital book money of the banks, the new currency is just cash in a technically new form and thus introduces the possibility of direct payment in the digital space. This emancipates the sphere of circulation on the internet from financial service providers and allows direct transactions between users.