Europe is closer to the introduction of a digital euro after the European Commission today proposed a law that would make such a thing possible. This being Europe, privacy is central to the pitch—but there are big questions around how that’s going to be achieved.
The European Central Bank is technically still just looking into the idea of creating a digital version of the euro—which is used in 26 countries—and it will only close that investigation in October. But the ECB needs to see a legal framework for a digital euro before making that decision, and that train is now in motion.
The proposed regulation describes a digital version of cash that could be used for online and offline payments. All but the smallest businesses would be required to take digital euros, while an accompanying legislative proposal would also ensure businesses still have to keep accepting euro banknotes and coins. Even people without bank accounts would be able to go to a post office or local authority to set up a digital euro account, so there’s a financial inclusion element here, too.
Why do this? It’s partly about making Europe less reliant on America’s Mastercard and Visa payment processing networks, and on apps like PayPal, while providing an easy-to-use digital currency that avoids the risks associated with cryptocurrencies. Europe also doesn’t want to fall behind if China’s digital yuan catches on internationally and the still very non-digital dollar loses its grip on global trade. But China’s central bank digital currency is widely seen as being a tool of surveillance and control, and the EU does not want to give the impression of following suit.
Here’s the crucial bit: Offline digital euro payments—which would use mobile devices’ near field communication (NFC) chips, removing the need for a working data connection—are supposed to retain all the anonymity that comes with handing someone a physical banknote. “Nobody would be able to see what people are paying for when using the digital euro offline,” the Commission said in an explainer.
Under Article 37 of the proposed law, neither payment service providers nor central banks would be able to retain transaction data for such payments—they wouldn’t even have access to such data, as the peer-to-peer nature of NFC-based payments cuts them out of the loop. However, payment service providers would be required to keep data on amounts, timing, and device identifiers when people add digital euros to their devices or cash them out.
The Commission’s line is that this is “the same as what [people] disclose when they take cash out of an ATM.” Is it, though?
The German banking industry is certainly concerned about the privacy element (and more; banks don’t want to be sidelined by a new, official payment system). “It is questionable how the ECB intends to transfer the advantages of euro cash, for example, privacy and anonymity, to the digital world by means of an envisaged account-based version of a digital euro,” the industry’s association said in a statement describing citizens’ trust as “a key success factor for the widespread use of a digital euro.”
“It is not true that the so-called offline transactions would be the equivalent of cash. Or at least this isn’t guaranteed by the regulation,” wrote cybersecurity researcher Lukasz Olejnik in a blog post. “In other words, this sounds more like a PR ploy to reduce concerns about tracking users’ lives and transactions.”
Of course, there will be many opportunities to improve on the Commission’s proposal, which will now be modified by the European Parliament and the EU’s member states. But as it stands, there may be reasons to be concerned about whether the digital euro really will retain the full privacy characteristics of cold, hard cash.
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David Meyer
Data Sheet’s daily news section was written and curated by Andrea Guzman.
