Surveillance state, state crypto, and the end of cash? A more nuanced look at the digital euro

The public debate on the digital euro is often shaped by striking narratives: Will it abolish cash? Will it become an instrument of state surveillance? Will the European Central Bank turn into a competitor of commercial banks? Or is the digital euro simply a form of “state crypto”?

In our eFin-Blog article, Valeryia Arnold and I argue that such questions are understandable, but often too simplistic. They tend to turn theoretical possibilities into seemingly inevitable outcomes. A more productive discussion, we suggest, should focus on the concrete design choices currently being considered for the digital euro.

To structure this discussion, we use an architectural perspective on central bank digital currencies. We distinguish four key layers: access, control, business model, and data. Each layer reveals different design options and helps separate realistic developments from speculative scenarios.

On the access layer, the digital euro appears to be designed not as a replacement for cash, but as an additional payment option. Access could be provided through apps, web interfaces, cards, QR codes, or contactless payments. Importantly, the current direction points toward integration into existing payment habits rather than forcing entirely new user behavior.

On the control layer, our article addresses the widespread concern that the digital euro could enable comprehensive state surveillance. We show that the actual design space is more differentiated. Identification and regulatory checks would likely remain with banks and payment service providers, while privacy-enhancing mechanisms such as the separation of identity and transaction data, encryption, and offline payments for smaller amounts are being discussed.

On the business model layer, we make clear that the European Central Bank is not expected to take over the customer-facing role of commercial banks. Rather, the emerging model points to a division of labor: the ECB would provide the basic infrastructure, while banks and payment service providers would continue to handle customer interaction, identification, compliance, and parts of payment processing. Holding limits could also reduce the risk of large-scale shifts of deposits from commercial banks to digital euros.

On the data layer, we highlight the importance of technological choices such as account-based versus token-based models, offline functionality, interoperability, and standardization. The current direction seems to be hybrid: larger online payments would remain close to existing account-based structures, while token-based approaches may become relevant for offline payments that resemble some characteristics of cash.

The central message of our article is that the digital euro should neither be dismissed as a surveillance tool nor celebrated as a purely technological innovation without risks. Its societal implications depend on concrete architectural and regulatory decisions. The digital euro currently appears less like a radical break with the existing financial system and more like an attempt to extend Europe’s payment infrastructure with additional digital, interoperable, and potentially more privacy-sensitive capabilities.

The full article is available here (in German): https://zevedi.de/efinblog-ueberwachungsstaat-staats-krypto-bargeldende-diskussion-um-den-digitalen-euro-und-gestaltungsoptionen/