Analysts at Deutsche Bank see digital currencies as the future. For Europe, however, they paint a rather bleak picture: the EU will be the loser in the digital currency revolution, while China and the US will win. Is the situation really that bad?

Deutsche Bank has published a paper on digital currencies that simultaneously oozes optimism and pessimism – optimism for digital currencies, pessimism for Europe. The analysis can be seen as a cry for help and a warning. The paper is based on a survey of 3,600 of the bank’s customers from Germany, Europe, the U.S. and China, as well as the authors’ views on the present and future of digital currencies.

The forecasts presented in the paper paint a very clear picture of the future: digital currencies will grow rapidly in the coming decade and replace plastic cards as a means of payment. A digital currency that becomes mainstream will virtually eliminate digital payment fees and significantly speed up the settlement of transactions. The best contenders for a successful digital currency are Facebook’s Libra and Diem, respectively, and China’s central bank’s digital yuan. Both projects have the potential to change the balance of global economic power.

While the prediction for the future is extremely clear, the details of the paper remain somewhat unsatisfactory. On the one hand, the results of the survey, which is exciting in itself, are mentioned only in passing and unsystematically, while on the other hand, the forecasts are at best educated guesses with extreme gaps in the details.

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Cling to cash, old people don’t understand crypto

understand cryptoThe survey of 3,600 Deutsche Bank customers reveals a lot. For example, it clearly shows how differently the various age groups perceive cryptocurrencies: The younger, the more optimistic; the older, the more pessimistic.

Almost 40 percent of 18-34-year-olds think cryptocurrencies are replacing cash and credit cards and are good for the economy. Among the over-55s, not even 20 percent see it that way. In return, about 60 percent of this age group think that cryptocurrencies create a financial bubble, are too volatile, unregulated and difficult to understand. In turn, only about 40 percent of the younger ones see it that way.

The national differences are just as striking. For example, young people in China, Italy and France in particular have more experience with cryptocurrencies than in Germany, while in this country older people have bought or sold cryptocurrencies more frequently than in other European countries. The survey also reconfirms that people in Germany are much more distrustful of plastic cards as money than in other countries and instead rely significantly more on cash – especially among older, low-income men. This could fit with the fact that the older age group in Germany is more committed to cryptocurrencies than in other countries – they may see them as a digital continuation of cash.

The survey captured age, income, place of residence, and attitudes toward cryptocurrencies, cash, and credit cards. Unfortunately, the paper does not begin to exploit this treasure trove of data. Nevertheless, the further analyses are exciting: they show what a possible future of digital currencies could look like.

The future belongs to the Chinese central bank and Facebook

  • The researchers assume that digital currencies will “radically change payments, banking, central banks and economic power relations.” After all, “we have already moved from the gold standard to fiat money. Why shouldn’t we take the next step to digital currencies?”
  • However, this change is not a no-brainer. For digital currencies to reach the mainstream, several conditions must be met: they need the backing of a government, and they must be stable and widely accepted. Despite significant benefits for users, this has yet to happen.
  • Among other obstacles to the arrival of digital currencies in the mainstream so far are regulatory problems – such as money laundering, terrorist financing, fraud, market manipulation – the lack of support from merchants and payment service providers, and finally the lack of stability.

The prices of cryptocurrencies are too volatile, which makes them risky to hold. Furthermore, Bitcoin ( is an extremely poor unit of account for debt. You don’t want to get into debt in a currency that increases its value tenfold over the course of a few years.

The authors give Facebook’s Diem and the Chinese central bank’s digital yuan the best chance of overcoming these difficulties. That’s because both can get a crowd moving: Facebook its 2.5 billion users, China its 1.4 billion inhabitants. Both also have good chances of creating alliances with important partners: the digital yuan with China’s payment service providers Alipay and WeChat Pay as well as the shopping platform Alibaba, Diem with apps like Apple Pay and Google Pay, credit card providers like Visa and Mastercard, and retail platforms like Amazon and Walmart.

The fact that not a single European company appears in the list of important partners is embarrassing. The EU is the largest economic area on earth and, with the euro, has a strong, internationally demanded, relatively stable currency. How did it get to this point that the EU not only does not have a project that can compete with the digital yuan and diem – but does not even have globally relevant payment service providers and trading platforms? What went wrong? It is time to ask this question, and to aggressively demand an answer from the EU’s ruling politicians.

Because the scenario that analysts outline for the future looks bleak for Europe. On the one hand, Diem becomes a strong global currency, widely accepted in countries like Zimbabwe, for example. The U.S. can thus export a second currency in addition to the dollar. On the other hand, China has long nurtured an ambition to establish the renminbi globally as a currency for settling payments. A digital yuan could advance this goal while China throws its weight as a leading exporting nation to convince other countries. Instead of catching up with the dollar as the world’s currency, as the euro should aspire to be, Europe’s single currency will lose importance in favor of Facebook’s Diem and China’s digital yuan.

Advantages of a digital central bank currency

The differences between the EU and China become extremely clear in the example of a central bank’s digital currency. Learn more about central banks at,tag.html.

China’s central bank has been planning its own digital currency since 2014 and is pushing ahead with it resolutely. It is still not live in spring 2021, but it is being tested and is technically close to completion.

The EU, on the other hand, has spent the last 7 years rather praising its own payment system, having some esoteric studies written on digital central bank money, and launching some rather niche projects, without being able to commit to date whether it wants to follow through with digital currency or not. So the EU is already lagging China by about 7 years. Better said: It has not even started moving yet.

Yet a digital central bank money would be quite desirable, as the authors of the paper note. For users, it would reduce the risk of identity theft and phishing, lower payment fees, and make the settlement of stocks and securities more efficient and faster.

The benefits for central banks would be even greater. For example, they would have greater leeway in terms of monetary policy. Instead of expanding the money supply ever further through quantitative easing – and risking introducing inflation that is difficult to control – the central bank could operate with negative interest rates. If the money is all digital, it would then not have to fear a bank run that would cause savers to withdraw their money as cash.

Moreover, a digital central bank money would strengthen competition in the banking industry. This is because citizens could deposit their digital money directly into interest-bearing accounts at the central bank. This would alleviate many problems in banking: the risk of bank runs, the direct and indirect costs of deposit insurance, the need to bail out large institutions to prevent overly severe consequences of bankruptcy.

In short, for a central bank and a state, a digital currency can be an extremely helpful tool not only to raise the international standing of a currency, but also to influence the economy more efficiently. The fact that the EU and the ECB still haven’t figured this out, seven years after China realized it, is not exactly optimistic for the future of our continent.

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