European finance ministers have called for the digital euro to offer both privacy and transparency as central bankers are set to begin testing the project.
The digital Euro initiative is being spearheaded by the European Central Bank (ECB), with the idea first launching in October 2020 and a more formal “investigation” into the project rolling out in 2021.
The Eurogroup, which comprises finance ministers of countries within the EU using the common currency, has since held regular discussions on the topic.
Following their latest meeting, Eurogroup members laid out priorities for the Central Bank Digital Currency (CBDC), should the ECB decide to press ahead. The actual issuance of a digital euro, however, would depend on the outcome of EU legislation.
The members claim that a CBDC could strengthen the Bloc’s autonomy while providing citizens and businesses with many advantages.
Importantly, the European Central Bank would continue to serve as “an anchor for our monetary system,” the Eurogroup statement reads.
A need for privacy
There are still many unknowns about the project, though we must praise the latest Eurogroup latest statement that underscored a key tension between user privacy and anti-crime measures.
“To succeed, the digital euro should ensure and maintain users’ trust, for which privacy is a key dimension and a fundamental right,” the statement said. “At the same time, the Eurogroup also considered that the design of a digital euro should comply with other policy objectives such as preventing money laundering, illicit financing, tax evasion, and ensuring sanctions compliance.”
To that end, the group suggested a balancing act that would allow those performing “less risky transactions” more privacy.
Other issues raised included the potential environmental impact of a digital euro, as well as the belief that it should not replace cash but complement it.
The group also showed what features the digital euro might have to make it competitive with traditional online banking. For instance, it should be explored how it would be used in an “offline setting” and how programming payments could be fulfilled when certain conditions are met.
The ball is now in the court of the European Commission, which intends to develop a proposal in the first half of this year to establish the digital euro and regulate its main features.
Meanwhile, the ECB is in the process of running a prototyping exercise for the digital euro. Five companies — including CaixaBank, Worldline, EPI, Nexi, and Amazon — were selected to take part in the exercise, with each one focusing on a specific use case for the CBDC.
This phase is set to conclude in the autumn, and a decision will then be made on whether to go ahead with making the project a reality.
At the same time, the ECB is inviting industry players to participate in market research, with responses due in mid-February.
On our end, we like what the EU is doing with this. If it can include privacy in a digital currency, that would be amazing. And, hopefully, something other central banks could copy.