As the European Central Bank works on the controversial digital euro, its top executives are trying to quell fears the project will be used to exploit citizens’ sensitive data.
“We will implement […] the most advanced solution in terms of privacy from a technological point of view,” Piero Cipollone, a member of the ECB’s executive board, told the European Parliament’s economic and monetary affairs committee this week.
The economist, who was appointed to the ECB board in November, addressed concerns raised by lawmakers.
To boost security, the ECB plans to register anyone who works with the digital euro data, which will remain “pseudonymous” to the central bank.
Only the payment service provider will be able to identify individuals.
Based on transaction data, “the eurosystem will not be able to identify people,” Cipollone said.
Since the ECB began its investigation and design of a central bank digital currency for the $14 trillion eurozone, it has encountered substantial backlash.
Privacy advocates warn against CBDCs, arguing that they may give state institutions access to more data on individuals.
Some policymakers are also puzzled as to what value a digital euro has for retail users.
Still, the central bank has assured that the digital euro will not launch until lawmakers agree on legislation.
The European Commission published its proposal for a digital euro in June, and the European Parliament is set to start negotiations on the bill in the coming months.
Yearly audit
Cipollone told parliamentarians that the central bank wants the digital euro system to be “audited every year to make sure that citizens will be reassured that we are complying, and we are behaving according to the rules.”
The digital euro design will also offer an option to pay offline, which would grant users similar levels of privacy as taking cash from an ATM.
Still, some lawmakers are not convinced the digital euro has any benefits for retail users.
Arguments that officials often associate with the digital euro, such as the need for financial inclusion or cross-border payments, are already solved by other solutions, according to Dutch right-wing politician Michiel Hoogeveen.
“The only argument I haven’t heard yet is because China is doing it so we should start doing it as well,” Hoogeveen said to the ECB executive during the committee meeting.
“I seriously still doubt whether there is any added value for digital euro in the market today.”
Monetary anchor
For European officials steeped in monetary policy, the goal seems clearer.
The central bank’s progress on a digital euro “would strengthen our strategic autonomy and support our competitiveness in a digitalised world,” ECB President Christine Lagarde told the parliament’s economic committee on Thursday.
The biggest private companies dominating the payments sector, including Visa and Mastercard, are not European. This raises concerns about the sovereignty of Europe, which this year celebrates 25 years since the launch of the euro.
Translating central bank-backed cash into a digital form may offer a new home-grown alternative payment system, officials say, at a time when dollar-denominated stablecoins are gaining popularity. It would also give the central bank more power over the financial system.
The ECB has been “struggling from the beginning” with how to communicate the motivation behind the digital euro, Cipollone said.
“For central bankers, it’s pretty clear — the business case is a monetary anchor,” he said. “People in the street do not understand what we are talking about.”
No more Amazon
In January, the ECB published a €1.2 billion budget for tenders to design the digital euro, but placed it on hold until associated legislation in parliament is completed.
Members of the European Parliament have been concerned with what companies might be selected.
Last year, when the ECB selected private sector firms to design the prototype of the digital euro, American tech giant Amazon came onboard to design the payment interface.
Left-wing German politician Henrike Hahn was among those concerned with Amazon’s involvement because “this might directly conflict with the objective of strengthening Europe’s sovereignty.”
Cipollone assured lawmakers that for the current two-year phase preparing for the digital euro that was announced in October, “only European companies owned by European citizens can participate.”
Inbar Preiss is DL News’ Brussels-based regulation correspondent. Contact her at inbar@dlnews.com.
