European Commission launches consultation on digital euro

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The European Commission has launched a consultation for its digital euro, urging payment and financial services specialists to pitch in on the needs and expectations of the central bank digital currency (CBDC), privacy and data protection and other aspects of Europe’s regional digital currency.

The consultation runs from April 5 to June 14, the Commission revealed in its announcement. It calls for payment specialists, credit institutions, merchants and their associations, developers of payment solutions, consumer associations, retail payment regulators, anti-money laundering supervisors, and other relevant experts to give feedback to the Commission on the digital euro.

We just launched a consultation on the digital euro – a digitalised form of central bank money available to all as a complement to cash.

What are your expectations for a #DigitalEuro? #EUHaveYourSay by 14 June!

— European Commission (@EU_Commission) April 5, 2022

Users’ needs and expectations for a digital euro are areas the Commission is seeking feedback on. Europe is fairly advanced on digital payments, with countries like Norway and Finland having a 98% debit card penetration, the highest in the world. This might reduce the demand for a digital euro.

The Commission also wants to know the digital euro’s role in the retail payments and digital economy; how it can be built to safeguard the legal tender status of the physical euro currency; its impact on financial stability; application of anti-money laundering and counter-terrorist financing rules; and how it fits into international payments.

The consultation will also collect feedback on the privacy and data protection aspects of the digital euro. This area has become quite contentious in recent times, threatening to jeopardize the entire project.

Initially, privacy was a major concern for the European Central Bank (ECB). However, in more recent times, it has been leaning towards sacrificing it to enhance other aspects such as anti-money laundering (AML) checks. 

Following a recent meeting of finance ministers from Eurogroup, Irish Finance Minister Paschal Donohoe told reporters that they had agreed that while privacy should be enhanced, anonymity will not be offered as it would risk the use of the CBDC for unwarranted purposes.

“A risk-based approach could be followed allowing for more privacy for less risky and smaller transactions and vice versa,” Irish Finance Minister Donohoe, who chairs such meetings, added.

European Commission’s Paolo Gentiloni emphasized on this, saying: “A completely anonymous digital euro is not desirable.”

There have also been concerns around the possibility of state snooping on consumer transactions, just as there are with the digital yuan in China. By mapping anyone’s financial transactions, it would be easy for the state to identify their spending habits, lifestyle, political and religious leanings, and more.

However, ECB board member Fabio Panetta brushed these concerns aside, claiming that the bank has “no commercial interest in use of this data,” and “will respect privacy laws until the last comma,” unlike private companies, which are in it for the profits.

While the digital euro will be subjected to heightened AML requirements, it will still not be as closely scrutinized as digital currencies. European Commission’s Mairead McGuinness revealed in an interview a week ago that recent tough AML requirements on digital currencies will be laxer when it comes to the digital euro.

“A digital euro should comply with AML requirements but this is different to the current discussion on cryptoassets. We will be assessing whether a higher level of privacy should be made available, in particular, for low-value transactions, depending on the risk characteristics of the digital euro,” she said.

While issues such as privacy vs. anonymity are taking center stage at the moment, the ECB hasn’t even committed to developing a digital euro. The regional bank says that all its efforts currently are geared towards just preparing for a future where CBDCs could be ubiquitous globally. This approach has been taken by several central banks globally, from the U.S. Federal Reserve, Bank of England, Bank of Japan to the South African Reserve Bank.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

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