Digital Euro: Enhanced Privacy Surpasses Private Systems, Claims ECB Exec

European Central Bank (ECB) executive board member Piero Cipollone recently addressed the European Parliament Committee on Economic and Monetary Affairs to discuss the preparations for the issuance of a digital euro. He highlighted four important issues that the central bank was facing and outlined how the ECB plans to ensure the public’s ability to use a free common means of payment.

Cipollone stated that the ECB has already begun searching for infrastructure providers for the European Central Bank digital currency (CBDC). He emphasized the importance of being proactive in this regard, as waiting until the decision to launch the digital euro is made would compromise their readiness. The ECB aims to have flexible agreements that can accommodate legislative and technological developments. Only legal entities with registered offices in the European Union and controlled by EU nationals will be eligible to participate in the procurement process. This may impact Amazon’s potential participation in the project, as they were chosen to create a prototype e-commerce component for the CBDC, but another call for applicants has been issued since then.

Cipollone then discussed the digital euro rulebook, which will establish a single set of rules, standards, and procedures for the digital currency’s implementation. The goal is for the digital euro to function similarly to cash, freeing users from reliance on international payment processors and ensuring equal service throughout the euro zone. Cipollone compared the digital euro infrastructure to train rails, stating that it should be open to various private companies while still being owned by the state.

The European Money and Financial Forum published a paper highlighting concerns about making the digital euro legal tender. It raised issues related to the status of private payment providers integrated into the euro system and referred to the concept of legal tender as a “barbarous archaism.” The ECB is taking steps to address these concerns and incorporate safeguards into the design of the digital euro to maintain financial stability. These include making the digital euro interest-free to avoid competition with savings institutions, imposing limits on public digital euro holding, and prohibiting businesses and financial institutions from holding it. A solution will be provided to link CBDC wallets with bank accounts to enable transactions without prefunding the wallets.

Cipollone also touched on the topic of privacy and reassured the public that the digital euro would offer high standards of privacy for online payments. He stated that offline digital euro payments would be as private as cash transactions, with only the payer and payee having knowledge of the details. For online transactions, the ECB would collect a minimal set of pseudonymised data for necessary tasks such as settlement. Users of the digital euro would have greater control over their information compared to existing private payment systems. The digital euro would prioritize state-of-the-art cybersecurity measures.

Cipollone’s remarks shed light on the ECB’s efforts to prepare for the issuance of a digital euro. The central bank is actively seeking infrastructure providers, developing a comprehensive rulebook, addressing concerns regarding legal tender and financial stability, and prioritizing privacy and cybersecurity in the design of the digital currency.