What's with Europe's rush to digital euro

Key Markets report for Thursday, 20 March 2025

Earlier this month, President of the European Central Bank and a convicted criminal, Ms. Christine Lagarde announced that the ECB would be rolling out the digital euro in October of this year. According to several white papers published since 2022, the ECB has envisioned making the digital euro "programmable," and phasing out cash and stores of value like gold. This transition could be so complex and so disruptive that we must wonder why they're even rushing these plans to begin with. As I wrote a few months ago, replacing cash with a central bank digital currency (CBDC) is an enormously complex and risky endeavour, and failure is the most likely outcome.

Nigeria’s experience

That's what happened when the Central Bank of Nigeria launched its own digital currency, the eNaira. This launch was extremely important to the global banking cartel: it was meant to showcase the benefits of CBDCs in Nigeria, so that the project's success would be welcomed and replicated in other nations around the world. To ensure that all goes to plan, Nigeria's authorities were provided with the best technical and project management assistance from the IMF, World Economic Forum and the Bureau of Industry and Security.

So, so many possibilities…

eNaira would be based on the tried and tested Hyperledger Fabric, previously used for the Bank of International Settlements’ Green Bonds project, among others. Hyperledger Fabric was praised for its "distributed ledger solutions underpinned by a modular architecture delivering high degrees of confidentiality, resiliency, flexibility, and scalability,” able to accommodate the complexity and intricacies that exist across an economic ecosystem. So, so impressive!

Still, the Nigerian people would require some extra-strength means of persuasion, since they were not sufficiently sophisticated to know what was best for them: in October 2021, a public referendum was held on the introduction of eNaira as replacement for cash. Naturally, 99.5% of Nigerians voted against it, so President Muhammadu Buhari issued a democratical decree that the project would go ahead all the same. The governor of the Central Bank of Nigeria (CBN), Godwin Emfiele announced that by the end of January 2023, Nigeria would transition fully from physical cash (naira) to eNaira, and the people would have to transfer all their cash holdings to the CBN which would convert them to individual eNaira balances.

Nigerians lining up for cash before the eNaira introduction

The people still rejected the CBDC and the whole project went down in flames in only 108 days. President Buhari was swept out of office and the CBM governor Emfiele was arrested. It's important to realize that Nigeria wasn't randomly selected for this launch: as we later learned, it was selected by the Biden administration because they believed it would be a straightforward case, thanks to Nigeria's relatively simple financial system. The ECB almost certainly took the lessons learned from Nigeria into consideration and is making extensive preparation for the launch of the digital euro.

Why?

However, the ECB is also looking at a vastly more complex financial system in Europe where one central bank controls the currency issued by 20 eurozone nations, each with their own domestic banking systems, legal frameworks, labor laws, pension systems, etc. It is not a given at all that all eurozone nations will agree to introduce the digital euro. And it is a near certainty that the majority of people will reject it.

So the question is, why is the ECB even embarking on this extraordinarily ambitious project? It is unclear what problems, exactly, the digital euro will solve. Those who are promoting CBDCs seem to always focus on one benefit: it will help prevent crime and terrorism. But even if that were so, when did the central banks' mandates evolve to include fighting crime and terrorism? Of course, they didn't; instead, what the central bankers are hoping to achieve is control, as Ms. Lagarde herself inadvertently admitted in a prank call in April 2023.

It’s about “absolute control,” and the tech to enforce it!

Thinking that she was speaking to Winston Churchill of today, President Volodymyr Zelensky, Lagarde pretty much admitted that the digital euro will be about control: who may spend what money, where and on what. She told the fake Winston Churchill that conceivably, a very small amount - say, 300 euros - could remain underneath the radar so that no controls apply to small-scale purchases, but then she warned that this would, in fact, be very dangerous. In other words, our bankers need total control to keep us safe. In October 2020, Bank of International Settlements' chief Augustin Carstens was more explicit about his enthusiasm for CBDCs, stating that central banks "will have absolute control on the rules and regulations that will determine the use" of money, and "we will have the technology to enforce that." Wow: absolute control and the tech to enforce it!

I believe that the digital euro project is highly unlikely to succeed. But in attempting to introduce it, the ECB, along with other European institutions will cause significant disruptions in the markets, a spike in inflation, an impulse to hoard items like toilet paper and coffee, as well as an exodus of capital from Europe. In that, it could trigger a significant collapse in the euro's exchange rate against other currencies. Ultimately, it could easily precipitate a disintegration of the EU itself.

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Trading signals for Key Markets, 20 March 2025

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