The digital euro: more smokescreens

what the latest CBDC narrative shift says about the real goal

“Great is the power of steady misrepresentation” – Charles Darwin ||

Hello everyone, I hope you’re all doing ok!

As I type, I have workmen drilling right outside my window. I hope your day is more peaceful so far. At least it’s stopped raining where I am.

Below, I update on the digital euro – there’s been a lot of confusion around that over the past few days, as well as some new developments.

IN THIS NEWSLETTER:

• The digital euro: more smokescreens

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WHAT I’M WATCHING:

The digital euro: more smokescreens

“Maintaining agility affects how we can talk about the future.”

ECB Chief Christine Lagarde gave a speech in Frankfurt this morning in which she acknowledged that the ECB was going to drop forward guidance on rates as it constrains much-needed flexibility in these uncertain times. But don’t worry, because the central bank will outline its “reaction function” so that investors know what to expect in this “new environment”.

Perhaps, like me, you’re wondering “what new environment?”, since no-one knows what the tariff or geopolitical situation will be by the end of the day anymore, let alone how to plan for it.

But, stepping back, we can appreciate the intent: sending the message that the ECB has all eventualities under control. Markets have no reason to panic. It’s all about communication to set expectations. And agility is essential.

Swinging narratives

This emphasis on agility in communication may sound like a large institution embracing flexibility, arguably a sound strategy in these changing times.

But it also hints at a degree of manipulation. Lagarde is explicitly acknowledging that messaging matters for expectations. The logical extension of this is that if one narrative doesn’t work, try another one.

We’re seeing this play out in the discussions around the digital euro, the EU central bank digital currency (CBDC) project. The prevailing narratives put forth by officials have changed over time, with no obvious move in support.