Europe does not need the Digital Euro

On June 23, Christine Lagarde addressed the European Parliament with a call for the acceleration of the legislation needed to make the Digital Euro viable. The president of the European Central Bank has been insistently advocating for the creation of a central bank digital currency (CBDC) over the past few years. The question that arises is: what is the interest of the European Union in moving forward with its CBDC in a world where Bitcoin exists?

Lagarde’s own speech contained some of the weakest and most unwarranted criticisms of the sector, below the level of rigor required of a professional with her background. The ECB president pointed to the risks of a possible price correction and the alleged inadequacy of these assets as a reliable means of exchange. A particular target of her speech was also stablecoins – generally indexed to the US dollar – which, according to Lagarde, are issued by private entities and lack global supervision. Finally, she argued that, like physical notes and coins, the Digital Euro would be risk-free.

It becomes imperative to deconstruct, point by point, the arguments presented. Not only because of their internal weaknesses, but because of the implications they carry.

The criticism that cryptocurrencies are inadequate as a reliable means of exchange would be expected from an octogenarian with no financial or technological literacy. Not only are cryptocurrencies reliable for sending money, they also outperform traditional systems in efficiency, speed and transaction costs.

According to World Bank estimates, in 2023, the volume of remittances from immigrants to their countries of origin reached US$656 billion. Applying a conservative rate of 5%, the costs of these transactions exceed US$30 billion. In addition to these costs, there is the time it takes for the transaction to be processed, which is rarely less than 5 business days – assuming no other setbacks occur.

Speaking from experience, as an expat in Canada, I do not intend to use any other method of transferring funds other than the Bitcoin network. It is true that there is a risk of sending crypto assets to the wrong wallet, but this risk is essentially no different from transferring funds to the wrong bank account. In fact, the user has an even greater degree of control over a Bitcoin transaction, with greater visibility and autonomy in the process.

As for the risk of price correction, it is worth remembering that this is not exclusive to cryptoassets. Interestingly, price corrections (read: recessions) are a consequence of the fiat currency financial system that Lagarde defends so vigorously. A system that treats credit as if it were capital, by monetizing debt in a systematic and vicious way. It is worth remembering that it is precisely under Lagarde's leadership that the ECB has increased the M2 money supply by 38% since 2019 – an aggregate that allows us to estimate the currency in circulation and the liquidity of an economy.

This logic of debt issuance and monetization is particularly evident in the real estate sector, largely due to the structural proximity of banks to the source of new currency. These financial intermediaries benefit from privileged access to newly created liquidity – before it loses value in the economy as a whole – which allows them to position themselves advantageously compared to other economic agents. Thus, capital holders are naturally led to seek refuge in real estate investment in an attempt to preserve the value of their income.

When faced with the abrupt increase in the monetary base and possible solutions to mitigate its effects, Lagarde simply declared “It will come” . Doesn’t this inevitable correction, potentially devastating for millions of citizens, deserve the same level of concern that she reserves for cryptoassets?

As far as stablecoins are concerned, they offer several advantages over the Digital Euro, despite some maturity challenges. Since they are privately issued, stablecoins are optional to adopt, unlike a potential Digital Euro. Furthermore, these issuing entities have a direct incentive to submit to independent audits, otherwise they risk losing the trust of their customers. In the case of the ECB, this accountability is more diffuse and, at times, practically non-existent.

The most widely used stablecoin , Tether, maintains its peg to the dollar mainly through holdings of US Treasury bonds. This collateralisation structure introduces an additional layer of security: the US government itself has an interest in ensuring the stability of a dollar-linked asset used by millions. In contrast, the ECB does not reveal the amount of these same bonds it holds – and in this case, this lack of oversight and transparency no longer seems to worry Lagarde.

Finally, the Frenchwoman claims that, like physical notes and coins, the Digital Euro would be risk-free. However, one only needs to look at the 38% increase in the M2 aggregate since 2019 to see the opposite: in just six years, Lagarde has expanded the monetary base at a rate that, at the “desirable” inflation rate of 2% per year, would take more than sixteen years to achieve. This accelerated inflation represents, in itself, a systemic risk for households – a risk that would not disappear with the Digital Euro. On the contrary, it could be amplified, given the programmable and centralized nature of this CBDC.

The European Union does not need a Digital Euro. What it does need, and urgently needs, is a clear and ambitious Bitcoin strategy. By comparison, the United States and China each hold around 200,000 Bitcoins, suggesting that this is yet another area where Europe could fall behind.

Ironically, the European Union could combine its green ambitions with Bitcoin mining. One of the recurring criticisms of renewable energy is that it occasionally produces more than its energy needs. In these cases, energy generation is often intentionally reduced, resulting in technical and economic waste. It is estimated that in 2023 alone, more than 12 TWh of renewable energy was deliberately wasted, with an economic impact of over €4 billion. This same energy could have been channelled into sustainably mining Bitcoin, converting waste into value.

In the case of Portugal, there are particularly favourable conditions that the new government should capitalise on to position the country as a pioneer in Western Europe. In addition to the current tax exemption on capital gains from crypto assets held for more than a year, the country has a growing technology ecosystem, with highly skilled domestic talent and significantly lower operating costs than most other European countries.

The coming into office of a new government represents a window of political opportunity to take a strategic step: the creation of a national task force dedicated to crypto assets, bringing together representatives from the public and private sectors and academia. As a first mission, this team should present, by the end of the year, a plan with legislative, fiscal and energy recommendations. This plan could be accompanied by a pilot project that would use surplus renewable energy for Bitcoin mining. In the medium term, the ultimate goal would be to create a national strategic reserve of digital assets – with an emphasis on Bitcoin – as an instrument for diversifying the State's financial reserves and protecting against global inflationary risks.

The argument that the sector is still immature or prone to abuse cannot be used as a pretext for inaction. As with any emerging technology, risks exist, but they are manageable with smart regulation, financial and technological literacy, and through active collaboration between different economic actors.

Ignoring this reality will inevitably be penalising – both for the European and Portuguese economies. In the words of the ECB president herself: “It will come”.