EU Readies for Second Stage of Digital Euro Project – How Will the Next 2 Years Pan Out?

Key Takeaways

• After two years of investigation, the EU will embark on the preparation phase of the digital euro project.
• As it moves one step closer to adopting a CBDC, the EU will now address more specific challenges.
• However, lingering privacy issues continue to hold up digital euro legislation.

The EU’s digital euro project has spent the last two years exploring different design and distribution models for a potential CBDC. Although any final decision on whether or not to adopt a new digital currency can only follow legislation by the European Parliament, the point of the digital euro project is to ensure that the legislative and technical processes remain in sync.

With the investigation phase now over, the EU will begin the preparation phase on November 1. For the next two years, Eurozone central bank will lay the groundwork for implementation, moving from hypothetical exploration to more practical challenges.

EU Moves One Step Closer to Adopting a CBDC

The investigation phase of the digital euro project concluded that any potential euro-based CBDC should function as a kind of digital cash. It should be widely accessible, free to use and offer real-time settlement both online and offline. While the EU has sought to prioritize privacy, it has stopped short of guaranteeing cash-like anonymity. 

During the preparation phase, the EU will finalize the digital euro rulebook and select providers to develop the necessary infrastructure. 

It will also experiment with the digital euro’s different technical dimensions, exploring how best to deliver the requirements established during the investigation phase.

Commenting on the project’s ongoing development, President of the European Central Bank (ECB) Christine Lagarde said , “we need to prepare our currency for the future.”

 “We envisage a digital euro as a digital form of cash that users can employ for all digital payments, free of charge, and that meets the highest privacy standards,” she added.

Central Bank Disputes Data Protection Board on Digital Euro Privacy

Lagarde’s emphasis on privacy has been a long-standing feature of her comments on CBDCs. But her reassurances have done little to quash rising anti-CBDC sentiment, which largely focuses on concerns over government surveillance of peoples’ finances.

In tandem with the ECB’s exploratory work, the  European Commission has proposed draft legislation that would provide the legal basis for establishing a digital euro. However, lingering privacy concerns have slowed the passage of the new law.

Currently, the ECB’s stance is that digital euro transactions should be private but not anonymous. In line with existing digital payment solutions, the central bank envisages a system in which wallet operators collect personal information in order to comply with anti-money laundering (AML) regulations, but this information remains hidden from the eurosystem itself. 

On Wednesday, however, the European Data Protection Board (EDPB) “strongly recommended” adding a privacy threshold for digital euro transactions to the draft law. Under the EDPB’s recommendations , low-value transactions would not be traced for AML purposes.

According to EDPS Supervisor Wojciech Wiewiórowski, the recommendations would “ensure that only the necessary personal data of users of the digital euro is processed, and avoid excessive centralization of personal data by the ECB or national central banks.”