EU Finance Ministers Say Digital Euro Must Offer Privacy

European finance ministers have publicly indicated that the digital euro must simultaneously offer both privacy and transparency, as central bankers begin testing the project this year.

The digital euro is led by the European Central Bank (ECB). The idea was first launched in October 2020, while a more formal investigation into the project was introduced in 2021.

Eurogroup, consisting of finance ministers from EU countries that use the euro, has since regularly discussed this topic.

In a statement following the latest meeting, group members outlined priorities for the central bank digital currency (CBDC) if the ECB decides to proceed with it. The actual issuance of the digital euro would depend on the outcome of EU legislation.

Members indicated that such a CBDC could strengthen the Union’s autonomy, as well as provide citizens and businesses with a range of benefits.

“It is important to note that the European Central Bank will continue to serve as the ‘anchor of our monetary system,'” the statement said.

Digital Euro: Balancing Privacy

However, it is yet to be decided what the digital euro will look like. The latest Eurogroup statement emphasized the key dilemma between user privacy and measures against crime.

– For it to succeed, the digital euro must ensure and maintain user trust, for which privacy is a key dimension and a fundamental right – the statement noted.

– The Eurogroup simultaneously believes that the design of the digital euro should align with other policy objectives such as preventing money laundering, illegal financing, tax evasion, and ensuring compliance with sanctions – it added.

The group pointed out that one solution could be to allow those conducting ‘lower-risk transactions’ greater privacy. Other issues raised during the latest discussions included the potential environmental impact of the digital euro, as well as the belief that it should not replace cash but rather complement it.

The group also provided insights into features that the digital euro could have to be competitive with traditional online banking, stating that it supports exploring offline functionality and programmable payments when certain conditions are met.

The European Commission intends to submit a proposal in the first half of this year to establish the digital euro and regulate its main features.

In the meantime, the European Central Bank is in the process of conducting a prototype development program for the digital euro. Five companies: CaixaBank, Worldline, EPI, Nexi, and Amazon, have been selected to participate in the exercise, each focusing on a specific use case for the CBDC.

The ECB’s investigation phase is expected to conclude in the autumn, after which a decision will be made on whether to proceed with the project.

At the same time, the ECB has called on industry participants to engage in market research, with responses expected to be published in mid-February.