In a newly published presentation, the European Central Bank (ECB) favors transparency over privacy data protection in the digital euro design.
The digital euro is a digital form of the euro issued by the Eurosystem (the ECB and the national central banks of the euro area) to the general public. Meanwhile, the digital euro has not been released as the ECB is currently conducting internal experiments with it and hopes to start working on a prototype by the end of 2023.
In the presentation entitled “digital euro privacy option,” the ECB revealed it prefers a transparent digital euro to one that offers users a high level of privacy. The Monetary Authority also examined various privacy solutions for the eurozone’s digital fiat in the document.
While the ECB recognizes that privacy is a fundamental human right and that the shift to digital payments means less privacy, the Monetary Authority at the same time stressed the importance of transparent digital payment and also that privacy needs to be assessed in the context of the European Union’s policy objectives at the Prevention of money laundering and countering the financing of terrorism (CFT).
The regulator futher elaborated on the subject, stating, “User anonymity is not a desirable feature, as this would make it impossible to control the amount in circulation and to prevent money laundering.”
Against this background, the ECB insists that the Eurosystem should be able to see the minimum transaction data needed to validate digital euro payments, even if it decides to perform the settlement function.
Also, anonymized/aggregated data on the use of the digital euro should be made available to the Eurosystem under any privacy settings for statistical and regulatory purposes and to fight against fraud/illegal activities.
In addition, the ECB presented three data protection options for the digital euro platform in the presentation. The first referred to as the “Baseline scenario: transparency to intermediaries,” aims to ensure that personal data and transaction data are accessible to intermediaries to ensure compliance with anti-money laundering and CFT regulations.
The second one, called “Going beyond the baseline scenario: low-value payments” would allow for a higher level of privacy for low-risk/low-value payments, and the last approach, “Going beyond the baseline scenario: offline functionality” provides full privacy for offline transfers; therefore offline transactions and balances are entirely private and not transparent to the intermediary or central bank