The European Central Bank (ECB) is accelerating its push for a digital euro, reflecting a stark contrast to the approach taken by US President Donald Trump. While Trump’s recent executive order denounces central bank digital currencies (CBDCs) as akin to fake crypto that contradicts core cryptocurrency principles, Europe is exploring the potential of a CBDC to modernise its financial systems—or so they believe.
Trump Rejects CBDCs as Centralised Threats
Trump’s executive order takes a firm stance against CBDCs, prohibiting the Federal Reserve from developing such a currency. Labelled as centralised imitations of cryptocurrency, CBDCs have been criticised for opposing the decentralised nature of blockchain technology. Trump argued that these currencies undermine the ethos of financial freedom and transparency, essential to the cryptocurrency movement- which is right.
In contrast, the ECB is actively considering a digital euro. This centralised digital wallet would be backed by the ECB and operated by banks, aiming to enhance payment efficiency and financial inclusion. While the ECB envisions the digital euro as a modern financial solution, concerns about its impact on decentralisation are mounting.
Global CBDC Adoption Sparks Debate
While the US has rejected CBDCs, other nations are moving to it. China’s experience with its digital yuan serves as a cautionary tale for CBDC proponents. Despite being heavily promoted by President Xi Jinping as a transformative payment tool since its launch in 2014, public adoption remains strikingly low. Surveys reveal that 90% of respondents have never encountered the digital currency in practice. The failure of the digital yuan has been further highlighted by the dismissal of Yao Qian, former head of the Digital Currency Research Institute, amid corruption allegations. Critics argue that the Chinese Communist Party’s recent messaging, which downplays the currency’s role as a supplementary payment tool rather than a revolutionary system, implicitly acknowledges the project’s shortcomings.
India’s journey with its CBDC, the e-rupee, mirrors similar challenges. Introduced in December 2022, its adoption has been limited, with only 1 million retail transactions recorded by mid-2024, despite incentivised initiatives like salary distributions in digital currency. Concerns about the e-rupee’s potential impact on the traditional banking system have led the Reserve Bank of India (RBI) to adopt a cautious approach.
These examples illustrate the significant hurdles centralised digital currencies face, from low public acceptance to systemic financial risks. By focusing on decentralised financial innovation rather than centralised control, Europe could safeguard its banking system and align with the foundational principles of cryptocurrency. The initiatives have raised concerns about increased government control and reduced financial privacy.
Why Europe Should Prioritise Decentralisation
Learning from the failures of centralised digital currencies like China’s digital yuan and India’s cautious e-rupee rollout, the ECB must recognise that centralised finance belongs in the past. These systems, fraught with low adoption and systemic risks, highlight the limitations of concentrating financial control. To move forward in line with civilisational progress, Europe should embrace decentralised finance, which aligns with the principles of innovation, transparency, and individual freedom.