Cash vs Crypto: How do CBDCs Succeed When Citizens Shun Digital Euro

Key Takeaways

• The EU is steaming ahead with the digital euro project.
• But so far, eurozone consumers remain unconvinced by CBDCs.
• Research by Spain’s central banks suggests that 65% of the population wouldn’t use a digital euro.

Advocates of central bank digital currencies (CBDCs) argue that they are a necessary corrective to the monetary balance, which, in the age of electronic payments, has seen central bank-issued “public” money increasingly sidelined by commercial bank-issued “private” money.

In this story, central bankers like to depict CBDCs as a kind of digital cash. But can the new form of money ever really displace its physical counterpart? The latest research by the Bank of Spain (BoS) suggests little appetite for digital euros among the country’s citizens.

65% Of Spaniards Wouldn’t Use Digital Euro

For many Europans, electronic transactions have long since superseded cash as their default payment method. But the digitization of payments has proceeded unevenly across the continent, and in Spain, cash is still king.

According to BoS’ report , 65% of survey respondents said they use cash for the majority of their everyday payments, marking a 1% increase since 2022.

Incidentally, the same number of people expressed no interest in using CBDCs and said they were satisfied with existing payment options. 

In fact, the majority of Spanish consumers have never even heard of the digital euro, with only 20% of the population apparently aware of the eurozone’s CBDC project.

The Limits of Payment Digitization

While Spain houses one of Europe’s most cash-heavy economies, around the world, the growth of electronic payments has stalled in recent years.

Across the eurozone, in 2022, the ECB found  that cash accounted for 59% of all payments at the point of sale. In the country with the greatest preference for cash, Malta, the figure was 77%.

While low levels of bank account ownership may contribute to high cash usage in emerging economies, in Europe, personal preferences appear to be more important.

For example, in Germany, where cash accounts for around 30% of payments, research by the central bank points to widely held beliefs surrounding the advantages of physical money. According to a survey  of German consumers, the most common reason cited for preferring cash was the anonymity it offered over alternatives. In addition, many respondents said that cash gives them a better overview of their spending.

What’s the Point in CBDCs if No One Uses Them?

When it comes to the future of digital euros, consumers’ apathy toward CBDCs and preference for cash payments makes the widespread adoption of the new digital currency appear unlikely.

Nevertheless, from the outset, the European Central Bank has stressed that the digital euro project isn’t about replacing cash, but about complementing existing payment channels. 

Assuming the eurozone does embrace CBDCs, it will likely be years or even decades before digital euro wallets catch up with cash as a means of everyday payments.

By analogy, European consumers were introduced to credit and debit cards in the 1960s. Yet even today, in countries like Spain cash remains the go-to payment method for over half the population.

However, although digital euros may struggle to make inroads in the realm of retail payments, wholesale transactions represent a far more compelling use case for CBDCs.

After all, for most European consumers, payment cards and digital wallets already offer instant, convenient transactions at the point of sale. But when it comes to large-value business-to-business transfers, many legacy payment rails remain bogged down by inefficiencies.

By streamlining the settlement process between financial institutions, wholesale CBDCs can help reduce costs, settlement times, and counterparty risks associated with traditional systems. They could also help to ease friction in cross-border payments.

In the end, even if EU citizens reject digital euros, businesses may still ensure that CBDCs play an important role in the monetary system.