The ECB is taking great effort to convince everyone of the merits of a [digital](https://inleo.io/@leoglossary/leoglossary-digital) [euro](https://inleo.io/@leoglossary/leoglossary-euro) (CBDC).  It wasn't Europeans to realize this is to their benefit while not being a threat to the [commercial banks](https://inleo.io/@leoglossary/leoglossary-commercial-bank).  


Its latest action is to issue a push to show people how beneficial this is along with the use case.  


After going through the material, including the promotional [videos](https://inleo.io/@leoglossary/leoglossary-video) that cropped up, there is a simple conclusion: There is no point to it.


This is something that Governor Chris Waller of [The Fed](https://inleo.io/@leoglossary/leoglossary-federal-reserve-bank-the-fed) said a couple years ago about a CBDC by that institutions.


In this article, we will dig through this mess.

https://www.basecamp.digital/wp-content/uploads/2021/08/Pixabay-geralt-5987786-Digitale-Waehrung-Euro-1280x720-1.jpg
<center> [Source](https://www.basecamp.digital/digitaler-euro-auf-dem-weg-zur-waehrung-der-zukunft/)</center>


## Commercial Banks Are Bad; Central Banks Are Worse


Many complain about the banks.  


[Bankers](https://inleo.io/@leoglossary/leoglossary-banker) are probably hated by the masses more than any other single group out there.  Part of this is certainly warranted while a portion is due to the misunderstanding and basic ignorance to how [money](https://inleo.io/@leoglossary/leoglossary-money) works. 


That said, as bad as commercial banks can be, central banks are much worse.


With the latter, you are dealing with an institution infested with economists.  The people are dangerous because they, for the most part, live in the theoretical world while exercising great [power](https://inleo.io/@leoglossary/leoglossary-power).  For some reason, many listen to these individual in spite of them being completely wrong.


It is one of the reasons why central banks [monetary policy](https://inleo.io/@leoglossary/leoglossary-monetary-policy) is useless.


Of course, the other piece to this puzzle is the fact central banks do not do money.


The ECB [put out a blog post](https://www.ecb.europa.eu/press/blog/date/2024/html/ecb.blog20240219~ccb1e8320e.en.html), making their case.  Here is where we will call their bluff and clarify the entire system.


## Why The Need For A CBDC?


Why does the ECB need to bring out a digital euro?


A more important question is this: if the ECB, like other central banks, could supposedly print money (legal tender), why the need for the digital euro?


Here is where the belief system of most is destroyed.  The answer is obvious.  If the ECB has the ability to create digital [currency](https://inleo.io/@leoglossary/leoglossary-currency), it would.  This means what the ECB, along with other central banks create, are something other than [legal tender](https://inleo.io/@leoglossary/leoglossary-legal-tender).


The only [liability](https://inleo.io/@leoglossary/leoglossary-liability) that meets this requirement are [banknotes](https://inleo.io/@leoglossary/leoglossary-banknote).  This is [central bank money](https://inleo.io/@leoglossary/leoglossary-central-bank-money) that is in the general [economy](https://inleo.io/@leoglossary/leoglossary-economy).  Outside of that, the [money supply](https://inleo.io/@leoglossary/leoglossary-money-supply) is the responsibility of the commercial banks.


This is where the problem resides for the [central bank](https://inleo.io/@leoglossary/leoglossary-central-bank).  


Like most of these institutions, the ECB is engaging in propaganda.  The CBDC is no different.  For some reason, these people believe that central [bank](https://inleo.io/@leoglossary/leoglossary-bank) money is the most stable.  This appears to be one of those statementswithout proof, yet it is continually repeated by them.  They also cling to the [lender](https://inleo.io/@leoglossary/leoglossary-lender) of last resort which isn't the case either.  In most instances, the central bank is the [market](https://inleo.io/@leoglossary/leoglossary-market) of last resort since they are the only ones making it.


Either way, their impact is severely overestimated by them.


Therefore, in spite of what they claim, a digital euro is nothing more than the ECB's plight to remain relevant.  Since the world is using less physical [cash](https://inleo.io/@leoglossary/leoglossary-cash), the influence these entities have is diminishing.  Regardless of the fancy tricks they play, what they call monetary policy there is little they can do.


In short, they cannot make commercial banks lend, hence expanding the money supply when desired.  


As for power, this isn't really on the central bank's agenda in my opinion since the belief people hold already grants it that.  However, there is another group who does hold influence over that institution and loves more power: [politicians](https://inleo.io/@leoglossary/leoglossary-politician).


Here is where the downside of CBDCs quickly become evident.  This is well covered in other areas so no need to delve into it here.


## Understanding The Ledgers


What is most crucial is to always keep [ track of the ledgers.


Central bank money means we are dealing with the [ledger](https://inleo.io/@leoglossary/leoglossary-ledger) of that institution.  The same is true for [commercial bank money](https://inleo.io/@leoglossary/leoglossary-commercial-bank-money).  In this instance, the balance people see in their bank [accounts](https://inleo.io/@leoglossary/leoglossary-account) is the money supply (digital euros, dollars, etc...) that are legal tender.  This is all kept track on ledgers run by those [financial institutions](https://inleo.io/@leoglossary/leoglossary-financial-institution).


The central bank's ledger comprises of banknotes and [reserves](https://inleo.io/@leoglossary/leoglossary-reserves).  This is their money.  The first is obvious to all and was a major part of the system before digital came along.  With the latter, we are dealing with [liabilities](https://inleo.io/@leoglossary/leoglossary-liability) on the banks [balance sheet](https://inleo.io/@leoglossary/leoglossary-balance-sheet) yet not something that is legal tender.   When the central bank "prints", unless it is cash, this is nothing more than a bank instrument (or stablecoin).  It is a currency that cannot be held by the average person.


Therefore, in spite of all their pontificating, the central bank is rather limited in what they can do.  Ironic that they take so much heat when they are really impotent.


Which brings up the idea of the digital euro.  Here again, things get confusing since it already exists.  Anyone with a bank [account](https://inleo.io/@leoglossary/leoglossary-account) in the EU is operates using this.  It is no different than the US dollar in the domestic banking system in that country.  We are not passing banknotes around.  Hell, even people's paycheck is issued using [direct deposit](https://inleo.io/@leoglossary/leoglossary-direct-deposit), i.e. a digital [transaction](https://inleo.io/@leoglossary/leoglossary-transaction).


What the central bank wants to do is create a second "digital euro", one that the general public can hold and utilize.  This will be tied to their [commercial bank](https://inleo.io/@leoglossary/leoglossary-commercial-bank) account, meaning people can switch back and forth.


So, if someone in France, can pay the electric bill using a digital euro in his or her bank account, why the need for the ECB's version?


I believe part of the answer, according to the ECB, is safety.  Some might try to [sell](https://inleo.io/@leoglossary/leoglossary-sell) the idea that the central bank is safer than the commercial bank.  


Unfortunately, in their blog [post](https://inleo.io/@leoglossary/leoglossary-post-hive), the ECB shoots this idea down:


>Even in severe banking crises, many banks are still considered safe (also because central banks act as a system-wide lender of last resort). For example, during the [Great Financial Crisis](https://inleo.io/@leoglossary/leoglossary-great-financial-crisis) in 2008 as well as in the recent crisis that hit US regional banks, safe banks continued to benefit from inflows.


This is correct.  During a banking crisis, not everything goes under.  There are always safety valves that people can pull.  In fact, a case could be made that [government](https://inleo.io/@leoglossary/leoglossary-government) Treasuries do more in during a crisis with regards to backstopping than central banks.


## In Conclusion


The ECB clearly states the digital euro they are working on is for [payments](https://inleo.io/@leoglossary/leoglossary-payment).  It is not designed to be a long term [store of value](https://inleo.io/@leoglossary/leoglossary-store-of-value) or an [investment](https://inleo.io/@leoglossary/leoglossary-investment).  The idea is to "reverse waterfall" it to prevent a run on the [deposits](https://inleo.io/@leoglossary/leoglossary-deposit) in commercial banks.


If all of this seems like nonsense, it is.  It also shows the power play.


Since we are focusing upon the material put out by the ECB, there is no discussion of the politicians.  Naturally, the central bank isn't going to mention that yet I believe any discussion about a CBDC without bringing up this group of parasites is inadequate.


That said, there is one final point to make:


>In terms of the interaction between central bank money and commercial bank funding, what really matters is the total [volume](https://inleo.io/@leoglossary/leoglossary-volume) of central bank money in circulation. 


Here the ECB is on the right track.  The only issue is central bank money.  It is right in the fact there is not enough money out there.  We are dealing with a near $100 trillion economy plus an expanding digital world.  [technology](https://inleo.io/@leoglossary/leoglossary-technology), which by its nature is deflationary, is growing at a rapid pace.  Hence, we need more money.


The solution is not, however, to depend upon central bank money.  Here is where the ECB also sees the situation:


>Moreover, new players might pose a greater [risk](https://inleo.io/@leoglossary/leoglossary-risk) to bank funding than CBDCs. [Stablecoins](https://inleo.io/@leoglossary/leoglossary-stablecoin), e-money institutions and other narrow bank constructs, some sponsored by big tech [companies](https://inleo.io/@leoglossary/leoglossary-company-business) with huge [customer](https://inleo.io/@leoglossary/leoglossary-customer) bases, do not care about the [role](https://inleo.io/@leoglossary/leoglossary-role) of banks in the economy. Non-banks have no obvious [incentive](https://inleo.io/@leoglossary/leoglossary-incentivize) to limit the use of their stablecoins or the services they offer, and the use of stablecoins could become significant.


It is also likely true that private money alternatives pose a larger through to the banks.  However, the idea that these pose a risk to the financial system is not quite accurate. 


In my view, the biggest threat is to the central bank system, something that was rendered pretty much worthless once [globalization](https://inleo.io/@leoglossary/leoglossary-globalization) came about.


So what is the point of the digital euro by the ECB?


From what I can see, it does two things:


- allows the central bank to maintain some relevance
- give more power to politicians


Outside of that, from the general population perspective, there is nothing.

___

<center> [What is Hive](https://inleo.io/@leoglossary/leoglossary-what-is-hive) </center>





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