The Euro's Digital Self-Destruct

Europe’s CBDC could collapse the trust the euro runs on

Just mentioning Central Bank Digital Currencies (CBDCs) has been enough to get you lumped in with flat-earthers and lizard people truthers in recent years. Horror stories about governments freezing your account because you bought too much meat have made it easy to dismiss the entire debate as paranoid nonsense.

When the loudest voices are shouting conspiracies, it becomes nearly impossible to raise legitimate concerns without sounding like one of them. Jacques Ellul nailed this dynamic in 1962 in his classic Propaganda: When we’re bombarded by conflicting narratives, “[we] will escape either into passivity or into total and unthinking support of one of the two sides.”

But blind allegiance means giving EU institutions a free pass on their bad CBDC design choices. And ignoring critics is a great way to shoot yourself in the foot, of course.

Preemptive Strike

While Christine Lagarde may dream of the euro threatening the dollar as a reserve currency, the European Central Bank’s (ECB) digital euro plan could end up doing the exact opposite. How? By undermining the very trust that ambition depends on.

The ECB’s case for a digital euro goes like this: alternative forms of money (like crypto or stablecoins) could gain too much traction and trigger a “lock-in” effect. If enough people adopt a private payment system, it becomes nearly impossible to unwind, even if it turns out to be harmful to the public good. To prevent this threat to the monetary system’s integrity, the ECB believes it needs to act early.

Nice to look at: privately-issued banknote

It’s not a baseless fear. In the 19th century, the widespread issuance of private currencies without proper reserves led to repeated busts, often leaving ordinary people holding the bag. However, the ECB’s current approach doesn’t just give conspiracy theorists a stronger hand, it also exposes the euro to real vulnerabilities. Let’s unpack why.

Programmable by Proxy

Most CBDC conspiracy theories trace back to the notion of “programmable money:” the idea that a digital currency could be switched off if you don’t comply with certain political or behavioral expectations. The ECB promises, “a digital euro would never be programmable money.” Problem solved, right? Not really.

What the ECB does plan to implement is something it calls “conditional payments.” That may sound like a benign feature: Your payment goes through the moment your Airbnb door unlocks. Convenient and consumer-friendly.

The distinction the ECB draws is this: these conditions will be developed by private service providers, not imposed by the central bank. The ECB only provides the infrastructure. But that rhetorical sleight of hand—denying “programmable money” while promoting “conditional payments”—is anything but reassuring.

Access Denied

It’s not hard to imagine how governments could sidestep those supposed guardrails. All it takes is a regulation that bans certain vendors from selling specific goods to certain groups of people. The easiest way to enforce that rule? Force vendors to accept “conditional” payments from everyone, except the people you want to exclude. Voilà: the central bank hasn’t programmed your money, but the outcome is the same. You’re blocked.

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If you’re a cynic, the ECB’s own language doesn’t exactly dispel those concerns. It describes conditional payments as “a broad category that includes both optional and value-added services.” So what you were trying to buy? That’s considered “optional.” And the new restriction? It “adds value” by protecting you from harm, of course.

“What’s with my money?”

You don’t need to assume bad intent from today’s policymakers to see the problem with this idea. The danger is that these technical capabilities can be exploited later. If a function exists, there’s always a non-zero chance it will be used. And doing it through a third party, rather than targeting the person who owns the money, is even more insidious.

Because if the government directly blocks you, it’s usually clear-cut: you’re the affected party, and you can challenge the decision in court. But if the government forces a third party, like a vendor or a bank, to follow certain rules, the impact on you becomes indirect. And that matters.

Outsource Enforcement

When harm reaches you through a “neutral” intermediary, it’s harder to argue in court that your rights were violated. The legal standard for proving that an indirect effect constitutes a direct injury is higher. The whole setup is not just more difficult to contest but also harder to even detect.

Outsourcing enforcement to non-state actors is nothing new for the EU. Under the Digital Services Act “trusted flaggers” can force platforms to remove “hate speech,” granting discretionary power to private entities with little transparent accountability.

You might nevertheless think that legal safeguards will keep the digital euro in check. It’s worth looking at how EU institutions have treated rules in the past.

Flexibly Applied

When the ECB began massive bond purchases during the euro crisis, critics cried foul, arguing it violated EU treaties. But the European Court of Justice waved it through, deciding that extraordinary times called for flexible interpretations. More recently, the EU’s ReArm program has loosened long-standing fiscal constraints like the Maastricht criteria, all in the name of strategic autonomy.

Where rules meet “strategic flexibility”

This isn’t to say there’s no rule of law in the EU. But it’s not crazy to assume that, if the moment feels urgent enough, the same logic could be applied to “conditional payments.” If the Commission or ECB sees a compelling reason, the pressure to act “for the greater good” can override any promises made during the design phase.

European citizens aren’t alone in facing risk. The effects could ripple up through the markets and could ultimately backfire on the EU itself.

Markets Don’t Like Fine Print

The digital euro is designed to function as a retail CBDC, essentially electronic cash. That places it within M1: the most liquid part of the money supply, made up of physical currency and checking accounts. This might seem harmless. But the perception of conditionality in this foundational layer can start to erode trust in layers M2 (savings and time deposits), and M3 (institutional holdings and repo markets).

That trust is everything. A reserve currency only works if people believe the off-ramps—the ability to convert money into actual use—will always function. Undermine that belief with conditionality and reserve holders will begin to hedge.

As trust in the base of the euro slips, demand for reserves weakens and yields climb. This loss of confidence will push up costs and weaken the euro’s position, regardless of what the ECB or Commission intended. Nevertheless, mainstream media casts CBDCs as a global arms race. China in the lead, and everyone else scrambling for influence.

Regulation ≠ Power

Despite the headlines, China’s CBDC hasn’t advanced its position as a reserve currency in any meaningful way. It rather confirms a basic truth: you can be first to launch, but if nobody trusts your money, it doesn’t matter.

Still not attractive

The push for a CBDC exposes a familiar flaw: the EU confuses regulation with power. Take the AI Act. The EU passed the world’s first comprehensive AI regulation while having no foundational models of its own and barely any globally competitive AI firms. Worse, it’s now scaring off the ones that might’ve come.

The digital euro follows the same pattern. By rushing to regulate programmable features, the EU may end up designing a currency no one wants to hold. The drive for control could end up undermining confidence instead. It’s telling that the current U.S. administration has abandoned CBDCs entirely.

The True Flex: Do Nothing

On January 23, 2025, the White House issued an executive order titled “Strengthening American Leadership in Digital Financial Technology.” The key clause:

Agencies are hereby prohibited from undertaking any action to establish, issue, or promote CBDCs within the jurisdiction of the United States or abroad.

Some criticized this move as a retreat. However, you can also read it as a calculated signal. Markets don’t reward surveillance tools with reserve currency status. They reward predictability and working off-ramps.

Yes, Trump’s trade war chaos is shaking confidence and fueling speculation that the long term goal is a weaker dollar. Yet the administration shows that whatever its position on currency valuation: it will not risk long-term trust in the dollar by layering in tech gimmicks. In fact, not building a CBDC may turn out to be a long-term strategic advantage. It shows confidence in the dollar’s existing architecture and leaves room for private innovation to evolve without state micromanagement.

Europe’s institutions, by contrast, fancy themselves a hip tech startup, competing in a game they barely understands and sprinting in the wrong direction. In October 2025, the ECB Governing Council will decide whether to move forward. If the next phase includes conditionality, it will introduce a known unknown: a risk that markets can’t quantify, but will start pricing in the moment it takes shape. Because when it comes to money, trust is earned with neutrality and the discipline to leave things alone. Turns out, the tinfoil-hat crowd is wrong about the details but right about the danger.

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