Digital Euro Fears: ECB Answers Your Concerns on Privacy, Safety

Why would commercial banks or payment processors accept the Digital Euro? Doesn’t it allow decoupling from their services?

Supervised intermediaries, such as banks, would play a key role in distributing the digital euro. They would act as the main point of contact for individuals, merchants and businesses for all digital euro-related issues and would perform all end-user services, such as setting up digital wallets or linking them to bank accounts.

Furthermore, the digital euro provides additional business opportunities for these intermediaries, allowing them to develop value-added services within their offer (e.g. conditional payments or loyalty programmes) with immediate reach throughout the entire euro area. The ECB therefore expects the Digital Euro to also encourage innovation and competition in the digital payment markets.

Its compensation model also provides economic incentives to intermediaries, comparable to other digital means of payment. Article 45 of the Legislative Proposal for the Establishment of the Digital Euro by the European Commission describes it as such:

As payment services providers distributing the digital euro would not be in a position to charge fees to natural persons for basic digital euro payment services, an inter-PSP* fee may be needed to provide compensation to those payment service providers for the distribution costs. The inter-PSP fee should provide sufficient compensation for the distribution costs of both the distributing and acquiring payment service providers, including a reasonable margin of profit.

*PSP: Payment Service Provider

If the Digital Euro, a CBDC, is safer, why shouldn’t I convert commercial bank issued money to this?

The ECB has made the following design choices to minimise any potential risks the digital euro may pose to the financial system:

• Users would only be able to hold a limited amount of digital euro in their account, thereby preventing outflows of bank deposits and ensuring stability.
• Linking their digital euro wallet to a bank account would allow users to make payments over the holding limit and cover any shortfall instantly (‘reverse waterfall functionality’), without having to pre-fund their digital euro wallet, assuming sufficient funds are available in the linked account.
• As with cash, no interest would be paid on digital euro holdings, limiting its appeal against regular savings accounts.

The Digital Euro gives the ECB too much power, opening up possibilities for policy-based restrictions or interventions that aren’t possible with physical cash.

In its legislative proposal, the digital euro is marked as a currency that “would never be programmable money and could therefore not be used to limit its spending to or direct it at specific goods or services”.

On the contrary, as a digital form of the single currency, it should be fully fungible and “give the public an alternative to programmable (automated) payments potentially offered by CBDCs of foreign countries and stablecoins (e.g. USDT, USDC) from technology companies”, if users want to use this function.

Article 55 of the proposal also adds the following:

Conditional payment transactions are payments which are automatically triggered by software based on pre-defined and agreed conditions. Conditional payments should not have, as object or effect, the use of digital euro as programmable money.

The Digital Euro harms privacy. Governments will be able to track and trace what you’ve been spending on much more easily, by linking the Digital Euro to a Digital ID.

The ECB created a dedicated portal to answer concerns on privacy issues, as privacy was considered the most important feature of a digital euro by both citizens and professionals participating in the “Public consultation on a digital euro” at the end of 2020.

• Cash-like privacy levels: The details of your offline digital euro payments would only be known to users and their recipients.
• No identification or tracking: The Eurosystem would not be able to directly link users to their payments. As a digital euro would be a public good, data would never be used for commercial purposes, unlike with other payment methods.
• No access to data: Intermediaries would only have access to the personal data that are necessary to comply with EU law, such as anti-money laundering and terrorism financing regulations. On its side, the ECB would have access to “pseudonymised” data only for the settlement of digital euro payment transactions.
• Reliance on EU Regulations: The Digital Euro would comply with the EU Data Protection Law (better known as GDPR), which is the strongest privacy and security rules in the world.

The legislative proposal also makes it a priority, highlighting privacy 37 times, affirming that, as per the GDPR regulations, it should be an utmost priority for its development and deployment.

It also focuses on offline Digital Euro uses, with three articles on the subject, which can be summarised as such:

Digital euro users should have the choice to use the digital euro either online or offline. The payment service providers should only store the identifier of the local storage device used for offline digital euro for the duration of facilitating the provision of offline digital euro to their customers. They must implement measures to ensure that the identifier of the device of individual digital euro users cannot be used for other purposes other than for the purpose of the provision of offline digital euro.

How is it different from private solutions such as Wero?

The Digital Euro is a Central Bank Digital Currency, subject to the regulations and oversight of the ECB and other relevant authorities, and is designed to be interoperable with other payment systems and currencies within the Eurozone, as per Article 52 of the legislative proposal. Wero and its international counterparts, on the other hand, are private initiatives, whose regulatory status depends on its specific features and the jurisdictions in which it operates, and whose interoperability depends on its design and the partnerships established by its issuer.