Digital Euro: acting for a privacy friendly model

The digital euro: what is at stake for the freedoms of citizens

The European Central Bank (ECB) has launched in the summer of 2021 an investigation phase to develop a digital form of the euro. For this institution, one of the objectives is to maintain a link between citizens and fiat money in a context of declining cash payments, particularly accelerated in some countries. However, the ECB sees the digital euro as a complement to cash, not as a substitute.

The year 2023 will be key for the digital euro project. The objective is to have a legislative proposal from the European Commission by this summer, following the ECB’s investigation phase. This leaves six months to design a digital euro that respects privacy from the outset.

The risks for privacy

In the ECB's preparatory public consultation, respondents considered transaction confidentiality to be the most important parameter in the design of the digital euro (43%).

privacy and personal data protection? - New window">The Cnil took an early interest in this subject, relaying the preferences of citizen-consumers and warning of the potential risks of this project. The European Data Protection Board (EDPB) also took a EDPB letter to the European institutions on the privacy and data protection aspects of a possible digital euro (PDF, 107 ko) - EDPB - New window">position, in the summer of 2021, that the digital euro should include a principle of privacy and data protection by default and by design. It also argued that the digital euro should be designed as closely as possible to the physical euro (cash).

In addition, the European data protection authorities consider that respecting the privacy of transactions is one of the key conditions for the success of the future digital euro. In order for this new means of payment to find its audience in an already highly efficient and competitive European payment ecosystem, it will have to demonstrate additional value added in terms of privacy and data protection.

Key points for a privacy-friendly digital euro by design

As part of the investigation phase, the European Central Bank deliberated in September 2022 on initial choices for the architecture of the digital euro with respect to the privacy of transactions. In doing so, the ECB essentially based itself on a review of the existing technologies and the European payment law in force and selected an approach that would lead to transactions taking place online, being listed on an account, being fully traceable and validated by an intermediary.

The characteristics of the model thus envisaged do not correspond to the first recommendations made by the data protection authorities.

In response, the EDPB privacy and data protection perspective (PDF, 361 ko) - New window">issued a statement last October inviting the ECB to review its approach on three main points:

• The possibility of using the digital euro via an offline electronic wallet, without Internet connection, in order to offer peer-to-peer payments in particular, must be proposed as a priority when the digital euro is created and not as a second step;
• In order to avoid generalized tracing of transactions, a privacvy threshold shall be provided for both offline and online use. Below this threshold, transaction data would remain on the user's terminal and would not be subject to any tracing by the Eurosystem or intermediaries;
• In order to provide a good balance between privacy and data protection on one hand and the fight against money laundering and terrorist financing (AML/CFT) on the other, a specific legal regime for the digital euro shall be introduced in European law.

In addition to the risk of generalized tracing already mentioned, the project also includes a cap on the number of digital euros held per European. This point raises risks of over-identification of individuals and could lead to constant verification of balances held.