Central banks worldwide are racing to digitize their currencies, hoping to meet the challenges posed by cryptocurrencies and modern payment systems. The European Central Bank (ECB) is no exception.
With its Digital Euro project, it seeks to usher in a new era of central bank money – publicly issued, universally accessible, and digitally native. But can this new form of money genuinely replace physical cash? Or are we chasing a promise that technology cannot yet deliver?
In a recently published study in the Journal of Risk and Financial Management, I take a critical look at this very question: Can the Digital Euro mimic physical cash in both function and quality? The answer is sobering.
More than Just Ones and Zeros
The ECB paints a compelling picture. The Digital Euro is to be the digital equivalent of the Euro banknote, offered by the central bank, trusted, stable, and accessible to everyone across the Eurozone. In theory, it should be as usable as a coin, just more convenient and better integrated into our digital lives. However, beneath this appealing surface lies a complex web of technological dependencies, privacy trade-offs, and structural limitations that the ECB rarely discusses with the same enthusiasm.
My research builds a comprehensive analytical framework comparing physical Euro and Digital Euro across 12 classical monetary characteristics, from fungibility to portability, and 3 dimensions of quality, performance, reliability, and perceived quality. In total, 36 pairwise evaluations are conducted, producing a granular and grievous verdict.
A Side-by-Side Verdict: Cash Still Rules
When tested against cash, how does the Digital Euro actually fare?
Better than cash? In only a few categories: portability, divisibility, and digital performance (e.g., cross-border instant payments).
Equal to cash? In limited areas like scarcity, legal tender status, and unit of account.
Worse than cash? In most of the rest, especially anonymity, fungibility, recognizability, offline usability, and perceived reliability.
The Digital Euro lacks physical tangibility, cannot yet function offline with confidence, and inevitably requires technological mediation (smartphones, apps, servers). What’s more troubling: its current design foresees identity verification (KYC/AML) for all users, holding caps, and non-remuneration, distancing it further from the universality and anonymity of cash.
Anonymity: A Dealbreaker
One of the most significant deficits lies in the loss of anonymity. Unlike physical cash, which can be used peer-to-peer without a trace, every Digital Euro transaction is subject to surveillance or at least recordability. While central banks claim to value privacy, the regulatory architecture – designed to prevent money laundering and terrorism – virtually guarantees traceability.
As a result, the Digital Euro will be a form of pseudonymous money at best, and not suitable for citizens wishing to retain full financial privacy. This limitation, I argue, is not a minor side effect, it is central to understanding why the Digital Euro cannot fully replace cash.
Technical Fragility and Offline Inadequacy
Another issue is offline functionality. Although ECB prototypes explore offline features, these are untested at scale and likely to be subject to design trade-offs. Cash, by contrast, is immune to network failures, battery issues, and software bugs. The durability and reliability of physical currency simply cannot be matched by a cloud-based CBDC today.
Further, recognizability, both visually and behaviorally, is a challenge for digital currency. Unlike a familiar €50 note, the Digital Euro will not be something you “see” in a wallet. Trust will need to be built through interfaces, branding, and user experience, resulting in an uphill battle.
Controlled Scarcity, But at a Price
On paper, the Digital Euro will be issued by the ECB in limited quantities, preserving scarcity. But its integration into wallets comes with holding caps (e.g., €1500 – €3000 per user), making it less flexible than banknotes.
Moreover, the potential programmability of the Digital Euro, while framed as an opportunity, raises concerns of monetary paternalism: money that can expire, be blocked, or be directed only to specific purchases.
Such a tool may serve policy goals, but raises serious questions about sovereignty and autonomy in personal finances.
The ECB’s Bold Claim Put to the Test
After 36 comparisons, the verdict is clear: the claim that the Digital Euro is an electronic equivalent of physical Euro cash is rejected. The Digital Euro cannot credibly mimic all key functions and qualities of physical cash. Particularly in offline, privacy-sensitive, or trust-dependent contexts, it falls short.
Conclusion: Supplement, Not Substitute
The Digital Euro may yet have a future – as a cash supplement, not a replacement. It could make digital payments more inclusive, reduce reliance on private intermediaries, and enhance cross-border functionality if used voluntarily and as a supplement. But to frame it as the successor and ultimately a replacement for cash is misleading.
If the ECB proceeds with the Digital Euro under current design assumptions, it risks repeating the mistake of assuming that technological progress automatically translates into functional equivalence. Thus, I remain steadfast: cash’s unique combination of privacy, simplicity, and resilience is hard to replicate and still deeply needed.
In the rush toward a cashless society, my study stands as a necessary reminder: not everything that glitters in digital form is gold.
This is a summary of my academic article published in the Journal of Risk and Financial Management. The full article can be obtained here (open-access).
Schueffel, P. (2025). Can CBDC Mimic Cash? A Deep Dive into the Digital Euro Case. Journal of Risk and Financial Management, 18(7), 394. https://doi.org/10.3390/jrfm18070394
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