The Digital Euro Endures Even as Crypto FOMO Fades

The digital euro, like a lot of central bank proposals to issue virtual cash, has so far existed in a policy sweet spot: maximum imagination, minimal execution. Dreaming up tokens, wallets, or ledgers that may future-proof fiat against the next Bitcoin or stablecoin is easier and cheaper than doing it for real.

As deadlines loom for a shift from pumping out jargon-filled white papers into an actual decision on whether to go ahead, however, feet are shuffling awkwardly as big risks hover into view.

A string of bank failures in the US — in which cryptocurrency played a part — and the downfall of Credit Suisse Group AG have attuned central bankers to the dangers of tinkering with a financial system where depositors are increasingly flighty. Throwing a digital euro into the banking system, for example, could suck deposits away; one study found that even a small take-up of €2,000 ($2,180) per household could rob smaller banks of more than 10% of their deposits.

FOMO Has Cooled | Money has left the crypto ecosystem since a string of scandals last year

The risk of a public backlash is also rising, fed both by conspiracy theories of Orwellian control and also the undeniable truth that an online digital euro will be less private than cash. Surveys suggest consumers aren’t keen on central banks accessing personal payments data.

Then there’s the niggling feeling of fixing what ain’t broke at the taxpayer’s expense. Cryptocurrency fever has cooled since the pandemic and venture capital funding has dried up without major disruption — suggesting central banks’ existing tool kit is still enough to defend the financial system and that maybe the inflation fight should be its real priority. Sweden now says it doesn’t need a central bank digital currency, while the UK has abandoned plans for a Royal Mint-issued non-fungible token. There’s the nagging feeling that this whole scene just isn’t hip anymore.