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The head of the European Central Bank (ECB) has been caught in a prank phone call from Russian comedians, who feigned interest in digital currency while pretending to be the president of Ukraine.
Over the Easter holidays, a clip of ECB President Christine Lagarde went viral on social media, showing the central banker talking with a man she believed to be Ukrainian President Volodymyr Zelensky.
As Lagarde would later find out, she was actually on the phone to Vovan and Lexus, Russian comedians who have gained notoriety by prank calling major celebrities and heads of state.
In the 20-minute video call that was published on Rumble.com, the two pranksters asked Lagarde about the Digital Euro, the ECB’s ongoing CBDC project and whether it would include any surveillance features.
“The Digital Euro is going to have a limited amount of control,” said Lagarde. “We are considering whether, for very small amounts — anything that is around €300 to €400 — we could have a mechanism where there is zero control, but that could be dangerous.”
Lagarde went on to say that such controls would be similar to those that are already applied by EU member states to cash transactions.
“We now have in Europe this threshold: above €1,000, you cannot pay cash — and if you do, you are in the grey market,” she said. “You take the risk, and if you get caught, you are fined or go to jail.”
Lagarde also pointed out that such controls will be necessary to prevent the Digital Euro from being used for financial crime, such as money laundering and terrorist financing.
Using the example of the 2015 Paris terror attacks, Lagarde said the attackers were “entirely” funded by low-value anonymous prepaid debit card transactions.
Without mentioning the agency by name, Lagarde was referring to an investigation by TRACFIN, France’s financial crime intelligence unit, which found that the attackers raised their entire budget of €30,000 through anonymous prepaid debit card transactions.
Why CBDC? Why now?
Aside from technical features of the Digital Euro, Vovan and Lexus also asked Lagarde about her motives for supporting the project.
She explained that she is concerned about the weakening of the EU’s monetary sovereignty, both from hostile foreign powers and from multinational corporations.
“I do not want Europe to be dependent on an unfriendly country's currency,” she said, “or dependent on a friendly currency from a private corporate entity like Facebook or Google.
“I do not want a foreign currency to become the currency of trading within Europe.”
Noting that the Chinese yuan and Russian rouble are her two main currencies of concern, Lagarde lamented the fact that, over the past decade, the EU has allowed itself to become dependent on imports of Russian gas.
Last year, as covered by VIXIO PaymentsCompliance, this dependence gave Russia significant leverage over the EU, allowing it to demand that gas purchases be paid for in roubles, among other concessions.
This leverage has weakened over time as the EU has diversified its gas purchases away from Russia towards countries such as the US, Qatar, Norway and Nigeria.
After accounting for about 35 percent of EU gas imports in February 2022, by the end of the 2022 Russia provided about 13 percent of EU gas imports, as per EU data.
Nonetheless, Lagarde is convinced that the world is moving into an era of currency wars, in which the most trusted and technically adept CBDCs are likely to dominate in international finance.
“We are preparing the ground,” she said, noting that the EU will make its decision on whether to launch a CBDC in October this year. “We want to be ready, we want to be trained.”
Will the public follow?
Lagarde also said she believes that the European public share her enthusiasm for CBDC. When asked why there have been protests against CBDC in Europe, she said the public is mostly in favour of a Digital Euro, though such protests demonstrate the “beauty” of European democracy.
“If you ask in northern Europe, for instance, in the Netherlands, they're quite happy to see the Digital Euro coming,” she said. “If you ask a young German man, they will say 'yeah, fine'.”
However, there is little statistical evidence that Lagarde can offer to support her claim that the public are in favour of introducing a Digital Euro.
To date, the ECB has only conducted one survey on attitudes towards CBDC. That survey did not ask whether citizens are for or against it, but what features would be most important.
Published in response to an ECB consultation in 2021, the survey found that “privacy” would be the most important feature, followed by “security”, “ability to pay across the EU area”, “no additional costs” and “offline usability”.
UK policy makers overlook public opinion
In the UK the Bank of England (BoE) was, until earlier this week, advertising for two new CBDC-related roles: “Digital Pound Solution Architect” and “Digital Pound Security Architect”.
Despite pressing ahead with these developer hires, the central bank has yet to make a decision on whether to issue a digital pound.
Speaking to the Treasury Select Committee, deputy governor of the BoE Jon Cunliffe did, however, say issuance of a digital pound was more likely than not.
Like the EU, there is also limited evidence of any public demand for a CBDC.
Last year, Politico conducted a survey of 2,500 Brits, which found that about 30 percent of respondents were against CBDC, 24 percent were for it and the rest were undecided.
At the Pay360 conference in London last month, VIXIO asked the BoE’s William Lovell, head of future technology, how the bank would respond if the public turned out to be strongly opposed to the introduction of a retail CBDC.
“We have not made a decision definitively to go ahead, and the consultation is part of that decision-making that will be made over the next couple of years,” he said.
“Fundamentally, if you want to deliver a policy outcome, we cannot do that through a currency that nobody wants — so if we produce a product that nobody wants and no one uses, then fundamentally it has failed.
“I do not think that is where we are going to end up — I hope that is not where we are going to end up. But absolutely, it has got to be something that people want to use and can use.”
