The digital euro, how exactly does it work?

At the moment there are two different types of official money. These are cash, coins and banknotes, and currency, money that exists in a bank account and consists of ones and zeros. Now the European Union wants a third type of money to be added: the digital euro. But what exactly is digital money?

Compare digital euro with money in the bank

In short, the digital euro can be compared to the cash that we already know from the bank. Money as information. But there are some important differences. Your digital money is not with a bank, but in an account with the European Central Bank. Not just from you, but from everyone who has digital euros. So all residents of the European Union.

There will probably be a special app with which you can pay with digital euros, as is already the case in China. This will allow you to send and receive money.

Benefits of the digital euro for consumers

The biggest advantage of the digital euro is that the European Central Bank can never go bankrupt. The euro can of course become worthless, but then you still have euros at your disposal. If your bank goes bankrupt, you can basically forget about your savings. You do not run that risk with the digital euro.

The second advantage of the digital euro is that it is basically free to use. After all, every resident of the European Union will receive a free bank account in this way. At the moment, a bank account with a commercial bank costs a tenner or more per month. The interest rates you receive on your savings also vary considerably. You no longer have those costs.

Benefits of the digital euro for the financial system in Europe

An additional advantage is that because everyone has digital euros, it becomes very interesting to use the payment system behind the digital euro everywhere. This means that paying will be much easier than it is now. Instead of having to have a credit card, a PayPal account and a banking app ready, you can pay everywhere with a single application. That is also nice for the retailer where you spend your euros. You don’t have to keep all kinds of expensive payment systems, one is enough.

Large banks are currently “too big to fail”. Payments between banks are also made via the Swift system, which the Americans have an iron grip on. The politicians within the eurozone are not too happy about this, because Americans often have different ideas about foreign policy than they do.

With the digital euro, all payments within the eurozone can be arranged directly outside of Swift. For example, if the Americans decide to boycott China, and we would like to trade with China, we can simply do so through this system.

Great temptation to do away with cash

That in terms of benefits. Yet many people are concerned about the digital euro, and that has everything to do with its drawbacks. First, there is a great temptation for the government to do away with cash.

Cash is anonymous and cannot be checked by the government. At most they can declare banknotes invalid, but that is a very rude remedy. Cash is difficult for both banks and the government. ATMs are regularly robbed by, for example, thieves. Banks must also always have heavily secured cars, for value transport, driving back and forth to transport money. These are also occasionally attacked.

The temptation is therefore great for both the government and the banks to work out cash. And we shouldn’t want that. Because if for any reason the power goes out or the bank’s website is hacked, your bank card is worthless and you can only pay with cash.

Government can introduce negative interest

The second disadvantage of the digital euro is that if the government has a firm grip on all euros, they can introduce negative interest rates. So let’s say you have € 1000 in your digital euro account, and the government thinks you save too much, they can threaten to take 10% off this account if you don’t spend that money.

If a bank tries to do that, you can always send your money to another bank, or withdraw all your money in the form of notes. So that bank looks out. But if the government does that, you can’t, because then there is only one bank. Certainly, if cash is abolished.

The government can see what you spend your money on

The Central Bank can see exactly what each digital euro is spent on. Does the government now see, for example, that you often spend your digital euros in an unhealthy snack bar or that you often make polluting air travel? Then there may just be a conversation with a government adviser, who urgently advises you to live a little more sensibly and carefully.

Artificial intelligence can also determine what your life looks like from the pattern of your expenses. Do you work in a sensitive position and do you often visit a café with an unfavorable reputation, the casino or do you buy a lot more alcohol? Then you can expect a meeting with a personnel officer.

The government can determine what you spend your money on

Okay, you will say, I have nothing to hide. Everyone may know that I have a Netflix subscription, love Australian didgeridoo music and drink a healthy juice with my girlfriend in the juice bar every Saturday and then throw a good shot of Smirnoff vodka through it, to add a little excitement to my life. bring. Now we come to the most annoying part, namely an end to the freedom on which you can spend your money.

CO2 credits

As is known, the CO2 content in the atmosphere has risen quite a bit. As a result, the climate is changing and we, most people think almost all scientists, should be concerned about that. It is therefore obvious to impose a CO2 budget on everyone. This is rather difficult with today’s systems, but with the digital euro it is a piece of cake. You simply link CO2 costs to every product that you can buy with digital euros and you know exactly how much CO2 you can still spend.

Are you going over your CO2 limit? Then you have to cycle the rest of the year, plant trees, eat vegetarian burgers and the central heating in your house is set to 12 degrees. About the way half of the Netherlands lives now, but only for CO2 sinners.

Social credit

If all payments go through the digital euro, you can, for example, also tackle issues such as drug abuse and smoking definitively. Simply make it illegal to buy cigarettes with the digital euro and you can only get a carton of cigarettes by giving your wedding ring to a shady smuggler.

Whether there is an extensive social credit system. For example, certain things cannot be bought by everyone, even if they do have the money to do so. And that with certain purchases, for example a singing Christmas tree, your social credit score drops considerably (in this case rightly so, by the way).

How threatening is a digital euro?

The most important thing is that cash is preserved. There is a real chance that, for example due to a solar flare or a nuclear explosion, electrical equipment will burn out. Or some crazy dictator will think that the Dutch are actually quite an irritating bunch and that with some long-distance drones on power stations we will sing a little lower. Then it is useful if you have some hard euros in your pocket if you want to do some shopping.

Furthermore, we should not overestimate the freedom we have with a bank account. It is quite easy for the government to seize a bank account and have it blocked, as during the trucker protests in Canada.

With crypto, for example, that seizure is not possible. With the digital euro, the mechanism will only become a bit more sophisticated and compelling than it is now. In principle, your bank can already do with your bank account what will soon be possible with the digital euro. But if they don’t, because then their customers would quickly run away.

Cash is freedom

Therefore, the question of whether cash will be preserved is more important than whether digital euros will be introduced. As a consumer, you can contribute to preserving cash by paying as much as possible in cash. Because coins and banknotes are less easy to take from you than ones and zeros on a computer server somewhere far away. Whether that computer server is located in the Netherlands or in Frankfurt.