Artificial intelligence is about to do something that no central bank has been able to solve: produce so much and so cheaply that money stops working as we know it. And Europe, true to its tradition, debates while others act. This is why the digital euro is not a technological whim, but a structural necessity. <\/p>\n
In a recent article<\/a> I explained how AI is taking to the extreme a trend that we have been observing for years: technological deflation<\/strong>. The marginal cost of producing goods and services tends to zero. Training an artificial intelligence model is expensive, but once trained, generating an additional report, a translation, a diagnosis or a line of code costs practically nothing. <\/p>\n In theory, this is fantastic. In practice, it has a consequence that few want to look at head-on: if production becomes cheaper and cheaper, prices tend to fall. If prices go down, companies bill less. If they invoice less, they pay less wages. If wages go down, people consume less. And if people consume less, prices go down even more. It is a spiral that economists know well and that has an unglamorous name: deflationary trap. <\/p>\n Fast paced along the path of the Matrix effect<\/a>: We replace expensive processes with cheap digital solutions that bring a lot of use-value but little money into economic circulation. Welfare can rise while GDP stagnates or, worse, contracts. <\/p>\n What do central banks do when the economy cools? Historically, they lower interest rates to make borrowing cheaper and thus stimulate consumption and investment. But what happens when rates are already at zero and no one wants to borrow<\/a> because the future of employment is increasingly uncertain? That lever stops working. <\/p>\n Quantitative easing (QE)<\/a> then comes into play: the central bank creates money to buy debt from banks and large funds. The idea is that this liquidity ends up reaching companies and households in the form of credit. The problem, as we have seen in Europe, the US and Japan over the last decade, is that much of this money never reaches the real economy. It gets trapped in the financial circuit: stock market, bonds, real estate. The ECB injected more than 2.5 trillion euros and barely managed to bring inflation closer to its 2% target. <\/p>\n The result is a dual economy: skyrocketing financial asset prices (enriching those who already have wealth) and an anemic everyday economy (where wages are barely rising and credit is not flowing). If anyone wonders why there is so much inequality<\/a>, an important part of the answer is here. <\/p>\n Quantitative expansion is a hammer. And when your only tool is a hammer, everything looks like a nail. The problem is that technological deflation is not a nail: it is a structural change that requires surgical precision. <\/p>\n This is where central bank digital currencies (CBDCs) come in. The idea is conceptually simple but revolutionary in its implications: that the central bank<\/a> can issue digital money directly to citizens and businesses, without going through the commercial banking system as an intermediary. <\/p>\n Today, when the ECB wants to stimulate the economy, money follows a circuitous route: the ECB buys bonds from commercial banks, the banks have more liquidity, and in theory<\/em> they lend more to businesses and households. In practice, as we have seen, banks often invest that liquidity in financial markets instead of lending it out. It is like trying to water a garden through a middleman who keeps half the water. <\/p>\n A CBDC opens a direct channel. And that allows something that was technically impossible until now: precision monetary policy. Let’s look at five reasons why Europe needs to take this step. <\/p>\n With a digital euro, the ECB could deposit money directly into citizens’ digital wallets. Not buying bonds from Goldman Sachs waiting for something to trickle down, but direct transfers to those who actually consume and produce. It is what Milton Friedman imagined with helicopter money<\/a>, but with an infrastructure that makes it viable, controllable and reversible. <\/p>\n In a scenario of technological deflation, where the problem is not the scarcity of goods but the scarcity of circulating money, this tool is essential. It is not a matter of distributing money out of generosity, but because the economic physics of an ultra-efficient system no longer rests solely on the ground of traditional employment and credit. <\/p>\n A digital euro could incorporate rules. Money that expires if not spent within a certain period, stimulating consumption in times of crisis. Money that can only be used in certain sectors: energy transition, local economy, professional training. Differentiated interest rates according to economic context. <\/p>\n This is not science fiction. It is the leap from monetary policy as a generic instrument to monetary policy as a precision tool. From adjusting the temperature of the whole house with a single thermostat, to having room-by-room control. Interesting, but for the moment Europe is not even considering it. <\/p>\nQuantitative easing: a hammer where a scalpel is needed<\/h2>\n
CBDCs: from hammer to scalpel<\/h2>\n
5 reasons why Europe needs the digital euro (and why it’s already too late)<\/h2>\n
Reason 1: Quantitative easing reaching the street<\/h3>\n
Reason 2: Programmable money<\/h3>\n
Reason 3: Credit disintermediation<\/h3>\n