The Liberal Case for the Digital Euro

Programmable money, social credit, the death of cash, and other myths

This blog post is an English summary of a Spanish podcast (Rompiendo Cadenas) I was interviewed on about the digital euro project. Diálogo Espontáneo, vol. II, no. 2 (2026), pp. 3 to 10

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In certain Liberal circles in Spain, the digital euro is often presented as an incurably statist project designed to increase government control over citizens’ money. That reading, however, frequently starts from an abstract idea of central bank digital currencies (CBDC) rather than from the concrete design the European institutions are actually discussing. The CBDC label can cover very different models, designed by different institutions and situated within legal systems that have nothing in common. It is therefore incorrect to attribute to the digital euro every feature that a hypothetically authoritarian CBDC might have.

The digital euro is a concrete project, subject to a specific legislative proposal (technically, this is called a Regulation), a specific technical design, and the legal limits of the European Union. To assess it seriously, one has to study that real project instead of fighting an imaginary version built out of general fears about the state.

The central thesis is that, in the configuration set out during the talk, the digital euro is not a project hostile to the market. On the contrary, it can be understood as a public, neutral infrastructure on which banks, financial firms, and private payment service providers can compete.

It would not be a state competitor seeking to drive private actors out, but a common infrastructure comparable to a public road used by many drivers. By reducing certain costs and tolls within the payment system, it could make it easier for small banks and European fintech firms to compete with larger financial institutions and platforms. For that reason, the digital euro could increase competition rather than reduce it. Like many aspects of EU institutions, it is fundamentally a Liberal project.

A new form of the euro, not a new currency

The digital euro would not be a new currency separate from the euro. Nor would it have a different exchange rate or a monetary policy of its own. It would be a new way of accessing the same currency that already exists. To understand this, one has to distinguish between public money and private money. Euro banknotes are public money because they constitute a liability of the European Central Bank. Coins are also public money, although their issuance and accounting treatment differ from banknotes and depend in part on the member states.

The money that appears in a citizen’s current account, by contrast, is normally private bank money. When someone sees that they hold 1,000 euros in their account, what they possess is a claim against their bank. That is, the bank is obliged to hand over that amount or to transfer it as instructed. That balance is not directly a liability of the European Central Bank, but of the specific commercial institution where it is deposited. Its safety ultimately depends on the bank’s solvency, on deposit guarantee schemes, and on the institutional framework of the financial system.

There is also another form of digital public money: central bank reserves. Commercial banks can hold and transfer these reserves within the Eurosystem, but ordinary citizens have no direct access to them. At present, therefore, citizens can use public money in physical form (mainly banknotes) and private money in digital form (their bank balances). What they cannot use directly is digital public money issued by the central bank.

The digital euro would fill precisely that gap. It would be a direct liability of the European Central Bank, accessible to citizens in digital form. In this sense it would resemble cash conceptually: both would be forms of public money, one physical and the other digital. The rationale for the project also rests on a change in payment habits. Cash use has fallen considerably over recent decades, while the share of transactions carried out digitally keeps rising. If the public continues moving away from physical money, its effective access to central bank money shrinks. The digital euro aims to offer a public alternative within the environment where citizens increasingly transact.

Why Bizum does not replace central bank money

At first glance Bizum (Spanish payment app) may look like a fully private alternative that makes the digital euro unnecessary. Yet the way it works demonstrates precisely how important central bank money is within the payment system. In fact, Bizum is more accurately seen as an interface of central bank money.

When a person sends money via Bizum (which to be highly specific, is just a SEPA Instant Credit Transfer), what changes initially are accounting entries between commercial bank accounts. The sender reduces the claim they hold against their bank and the recipient increases the claim they hold against theirs.

For the operation to be settled definitively, however, the participating institutions need to clear and settle their obligations. That settlement takes place, ultimately, in central bank money and through the infrastructures of the Spanish (Iberpay) and European financial system (TARGET).

Bizum relies on various components of the payment system, among them national clearing mechanisms and Eurosystem platforms, which is designed to settle instant payments in central bank money. Bizum therefore does not show that central bank money is dispensable. It shows that central bank money and the Eurosystem infrastructure is the foundation on which private payment systems can operate.

The digital euro would introduce one important difference. The balance used would not merely be a claim against a private bank, but money issued directly by the European Central Bank, even though the citizen would access it through a bank or payment service provider.

The digital euro is not meant to eliminate cash

One of the most widespread myths holds that the digital euro will be used to withdraw banknotes and force the population to carry out every transaction electronically. The draft Regulation examined during the talk states the opposite expressly: the digital euro must be complementary to euro-denominated banknotes and coins, not a substitute for the physical forms of money.

The initiative was also presented within a broader legislative package on the single currency. Alongside the digital euro proposal, another was put forward specifically designed to strengthen the legal tender status and acceptance of cash across the euro area. Anyone claiming that the EU wants to weaken the circulation of cash would need to answer why the Commission proposed a dedicated Regulation to remove ambiguities of the legal tender status of cash and coin.

This does not mean that cash use is currently free of restrictions. In countries such as Spain there are limits on certain cash payments. For example, Article 18 of Ley 11/2021 limits to use of cash to €1000 for transactions involving commercial activity (like buy clothing) , and many digital services (streaming platforms, ride-hailing apps, or online retailers) do not accept physical payment.

Those limitations, however, predate the digital euro and stem from other legislative, commercial, and technological decisions. They cannot be attributed to an instrument that has not yet been implemented. The digital euro would add a new payment option. Citizens could continue using cash, cards, transfers, Bizum, or other private services alongside the new instrument, depending on their preferences and on the terms each provider offers.

Infrastructure to cut costs and increase competition

For an ordinary consumer, paying with digital euros might not feel very different from using a card or a banking app. The main advantage would not necessarily lie in any visible transformation of daily life. The most significant impact would likely fall on the business side, especially on small merchants.

When a customer pays by card, they usually do not perceive the cost of the transaction directly. The merchant, however, has to absorb fees and intermediation charges tied to banks, payment processors, and international networks such as Visa or Mastercard. Those costs can weigh especially heavily on small firms with thin margins or little bargaining power to negotiate better terms. The digital euro could provide cheaper, shared payment infrastructure across the euro area. That would lower barriers to entry for small financial providers and allow new firms to develop services without depending to the same degree on the large incumbent intermediaries.

The point would not be to eliminate private activity, but to create a base on which more players could compete.

Consumers would keep a range of payment options. The small merchant, for their part, might prefer to receive digital euros if the transaction worked out cheaper.

Privacy: who would actually know about the transactions

Another frequent concern holds that the digital euro would let the European Central Bank observe every purchase citizens make. The design described during the talk establishes no direct contractual relationship between the user and the European Central Bank. This is specifically established in Art. 13(6) of the proposed Regulation: “…Digital euro users shall not have any contractual relationship with the European Central Bank or the national central banks.” Citizens would use the digital euro through commercial banks or other payment service providers. This means that in its ordinary online form the experience would be similar to that of other financial services today. The private institution providing the service would have to identify its customer and apply the corresponding rules on anti-money laundering, terrorist financing, and financial compliance.

The commercial bank could therefore learn about certain transactions in the same way it currently knows about payments made with a card or a bank account. The proposal, however, establishes a separation of data to prevent the European Central Bank or the national central banks from directly identifying individual users from the transactions processed. The central bank would manage the infrastructure and the money, but it should not receive a complete record automatically linking each payment to a citizen’s specific civil identity.

This, of course, does not make the digital euro a perfect equivalent of physical money when used online. A banknote transaction between two people can take place without any bank knowing it happened. A digital operation handled through a financial provider necessarily leaves some kind of record. The right comparison is not only between the digital euro and cash, but also between the digital euro and the cards, transfers, or banking apps already in use. For someone who currently pays with those instruments, the digital euro would not necessarily introduce any additional loss of privacy relative to their present situation.

What about the offline mode

The project also contemplates an offline payment mode, which could come much closer to how cash works. This option would allow small payments to be made directly between devices, without the transaction having to be communicated to the bank at that moment. Technically, it could use secure elements built into mobile phones or other devices to store and transfer value. In that model, not even the commercial bank would have immediate access to the specific information about each transaction. The exchange would take place locally between the parties’ devices, much like handing over physical money.

This mode would carry lower limits than the online system, precisely because the absence of immediate supervision raises certain technical and security risks. Even so, it is one of the most significant elements from a privacy standpoint. During the project’s passage through the legislative process, some quarters of the European Parliament have shown greater sympathy for the offline mode than for the online version. There has even been talk of introducing the system in stages, starting with an offline version.

The digital euro will not be programmable money

One of the most frequently repeated fears is that the state could program money to determine which products it can be spent on, impose consumption quotas, ban politically incorrect purchases, or set an expiry date. The Regulation proposal from the Commission under examination states expressly in Art. 24(2) that the “digital euro shall not be programmable money.” This means a unit of digital euro could not be designed to be valid only for certain products, territories, establishments, or periods. Nor should it disappear if the citizen fails to spend it before a given date.

A legal tender currency must be generally acceptable for the payment of obligations denominated in it. Turning it into a kind of government-conditioned voucher would conflict with that nature and with the European legal framework.

None of this prevents private companies or public administrations from creating subsidies, vouchers, or benefits with specific purposes. But those instruments would not be ordinary digital euros. They would be separate programmes subject to their own conditions. The fact that a technology makes it technically possible to introduce certain restrictions does not mean the legal order authorises institutions to do so. A public institution does not hold every power that technology makes possible, only those legally conferred on it.

The problem is not the technology but the rule of law

Comparing the digital euro to the Chinese system ignores the fundamental differences between the two political orders. The danger of a digital currency does not depend solely on its technical substrate. It depends mainly on the institutions that control its use, on the legal limits to power, and on citizens’ ability to defend their rights against the state.

In the European Union there are fundamental rights, data protection rules, independent courts, judicial review, and a division of competences among different institutions. The European Central Bank acts within a legal framework, not above it.

Its competences are limited by the principle of conferral (art. 5 TEU): it may exercise only those powers that the treaties and European legislation grant it. Its decisions must be published and reasoned, and they can be subject to review by the Court of Justice of the European Union. China has a completely different political and legal regime. The Chinese government’s capacity to use technology as an instrument of surveillance does not stem simply from its systems being digital, but from the absence of equivalent checks and balances, of rights genuinely enforceable against the state, and of independent courts.

Comparing only the monetary instrument while omitting the jurisdiction it operates in leads to mistaken conclusions. The danger lies not necessarily in the digital record, but in the political regime that controls it.

European member state governments already have tools at their disposal to investigate accounts, enforce seizures, apply sanctions, or demand financial information. They do not need to create a digital euro to exercise those powers. When I pay taxes in Spain, the tax authority has direct access to my bank accounts. The reason those powers should not be used arbitrarily is not some supposed technical incapacity, but the Rule of Law. The real debate should centre on the quality of institutions, judicial safeguards, and the limits on public power. If a person believes the digital euro will inevitably lead to totalitarianism because they do not trust the courts, the constitution, or the European institutions, their real concern is neither monetary nor technological. It is a lack of confidence in the entire legal system.

Limits on how much can be held

The proposal contemplates the possibility of limiting the amount of digital euros a person can hold as a store of value. The main reason is not to stop citizens from spending freely, but to avoid a mass disintermediation of the banking system. The digital euro would be a liability of the European Central Bank and could therefore be perceived as safer than a balance deposited at a commercial bank. In a moment of financial uncertainty, many people could shift their deposits into digital euros very quickly.

If a significant amount of money left the commercial banks, they would lose an important part of their funding and could face liquidity or solvency problems. In an extreme situation, the digital euro could accelerate a bank run. To limit that risk, the European Central Bank would set a maximum holding. Indicative figures such as 3,000 or 5,000 euros have been discussed, but there is no definitive number yet exists. The limit also demonstrates that the project does not aim to eliminate commercial banks. If the objective were to move every deposit to the European Central Bank, there would be no sense in restricting how much each citizen may keep.

The digital euro needs banks and private companies

The project has been designed to operate through commercial banks and private payment service providers. Citizens would not open an ordinary account directly at the European Central Bank. Their bank or provider would let them convert part of their balance into digital euros, make payments, check their funds, and move back into bank money whenever they wished. Conversion would be one-for-one at all times: a digital euro would have the same value as a euro deposited in an account or represented by a banknote. There would be no currency exchange operation and no independent quotation.

The digital euro could move between different forms of money within the system: from a bank account into a digital wallet, from that wallet back into the account, and in theory also through cash-related operations via the relevant institutions. Commercial banks would not be eliminated; they would form an indispensable part of the system’s ordinary functioning. Fintech firms could also participate as service providers, particularly following other European reforms designed to ease their direct access to certain payment infrastructures. The central bank exists, in large measure, as part of a system in which private banks operate. Presenting it as an institution designed to destroy them contradicts the logic of the project itself.

Who decides on its creation and design

The European Central Bank cannot unilaterally create the digital euro with whatever features it likes. Monetary policy falls within EU competences, but establishing the legal framework requires action by the EU’s co-legislators, the European Parliament and the Council. This is often forgotten. The Treaty of the Functioning of the European Union art. 130, art. 282(3) and the ESCB by art. 127(2) explicitly give monetary policy competence to the ECB. But, crucially, art. 133 confers competence over the legal regime of the currency to the legislators.

The European Commission puts forward the legislative proposal. The Parliament and the Council then draft, debate, and negotiate their respective positions. The final text has to be approved through the corresponding procedure (in this case, via OLP) before the European Central Bank can implement the instrument.

Once the Regulation is approved, the central bank would have technical powers to develop certain aspects, such as calibrating the holding limit, but always within the conditions set by the legislation. The ECB could not, on its own, alter the legal nature of the digital euro in terms of essential characteristics, turn it into programmable money, or eliminate cash without a fresh legislative process. To push this point further, the draft digital euro Regulation art. 38 states the delegated acts allowable under the Regulation, and key features such as programability are not listed. There is also abundant CJEU case law which explains and confirms that the legislators cannot delegate the powers to make essential legal changes. Those would need to go through the legislative procedure again. I.e, they cannot be done surreptitiously.

Could it become a Trojan horse?

There is always a possibility that legislation will change in the future. No legal system can guarantee that its rules will stay identical forever. A future European Commission could propose a different Regulation, more restrictive or more dangerous. Such a change, however, would be neither secret nor automatic. It would require a new proposal, public debate, participation by the Parliament and the Council, and approval of a new text. The European legislative procedure is slow, complex, and at times excessively bureaucratic. But it is also relatively transparent. Proposals are public, they can be consulted, and they are subject to scrutiny by parties, organisations, media, specialists, and citizens.

The response to a hypothetical future risk is therefore not to attribute to the present project features it does not have. It is to watch any future reform and oppose it if it violates the rights and principles one considers essential. One can reasonably argue that the digital euro is unnecessary, too costly, or of little use. That would be a legitimate debate.

What is not correct is to claim that the current project establishes programmable money, eliminates cash, creates a social credit system, or grants the European Central Bank direct and unlimited access to every personal transaction, when the proposal contains provisions to the contrary. The state always represents a potential risk of abuse. But that general risk does not automatically turn every public innovation into a totalitarian instrument.

How the European institutions work

Part of the criticism also stems from a lack of understanding about how competences are distributed within the European Union. The Commission holds the legislative initiative and can put forward proposals. The European Parliament, elected by citizens, takes part in amending and approving the texts. The Council represents the governments (also democratically elected) of the member states must also intervene in the process.

Citizens can consult the proposals, contact their MEPs, participate through civil society organisations, and put pressure on their representatives. The system is far from a direct democracy and has numerous defects, but it is not a secret structure in which a single institution decides without checks. It is also incorrect to assume that everyone working in the European institutions shares an anti-liberal ideology. Different political positions coexist across the Parliament, the Commission, the Council, the courts, and the technical bodies.

The Union’s primary law contains principles relating to the internal market, competition, property, economic freedom, and institutional limitation which, in some areas, can be more liberal than national regulations.

Many excesses attributed to Brussels in fact originate in the member states. This happens especially with European directives. A European Regulation applies directly (is core parts) in the member states. A directive, by contrast, sets objectives that each country must incorporate (transpose) into its domestic law through its own legislation.

During that transposition, national governments can add requirements and burdens that did not appear in the original European rule. This practice, known as gold-plating, allows a particularly interventionist national regulation to be presented to the public as an imposition from the Union. To analyse a rule correctly, one has to distinguish what the Union approved from what each government added afterwards.

A technical project turned into an ideological symbol

The digital euro has taken on enormous symbolic weight among its detractors. It is presented as a civilisational breaking point, while previous reforms (which I consider more fundamental and wide-scale) of the European payment system barely received any attention. Over recent years the EU has approved or developed numerous projects relating to instant payments, fintech access to central infrastructures, crypto-asset regulation, and modernisation of the Eurosystem.

Those reforms also carry important consequences for competition and financial architecture, yet they have not generated comparable opposition. The digital euro has become a kind of scapegoat onto which broader fears are projected about the state, the European Union, central banks, digitalisation, and the loss of privacy. From a technical standpoint, however, the project turns out to be far less revolutionary than is usually claimed. Hopefully from this analysis it seems boring, but that does not make it dangerous.

So how to think about the digital euro

My main warning is directed especially at liberals who form a firm opinion without having studied the actual project. It is legitimate to distrust the state, to criticise central banks, and to watch any expansion of public power. But that distrust has to be accompanied by rigorous analysis of the rules, the institutions, and the actual technical design. It is not enough to know that the digital euro is a “CBDC” and then transfer to it every criticism aimed at any conceivable central bank digital currency.

The European project, as set out in the podcast, is characterised by several fundamental elements. The digital euro would be a digital form of public money, equivalent to cash and complementary to it. It would not be a new currency and would not have a value different from the ordinary euro. Citizens would access it through banks and private providers, not through a direct account at the European Central Bank. The ECB is able to identify each user directly, and the proposal establishes a separation of personal data. It would not be programmable money, it would not have an expiry date, and it could not be restricted to the purchase of particular products.

A holding limit would exist to prevent a mass withdrawal of deposits and to protect the stability of commercial banks. The project does not aim to eliminate private banking. It depends on banks and fintech firms for its distribution and use. It could reduce payment costs for small merchants and increase competition against the large private card systems. The offline mode could offer a degree of privacy closer to cash for small transactions.

Any substantial transformation of the project would require new EU legislation and a public procedure subject to political and judicial checks. The real risk of abuse does not depend on the technology alone, but on the quality of the rule of law, on the limits to power, and on citizens’ capacity to defend their rights.

Liberty requires knowledge. Accepting any alarmist claim as true without studying the rules does not protect citizens against power; it impoverishes the debate and makes it harder to identify the genuine risks when they appear.