The digital euro will protect consumer privacy, as promised by ECB executives

The introduction of a digital euro would increase consumer privacy and protect the eurozone from the “threat” of competing cryptocurrencies that could undermine the bloc’s monetary sovereignty, according to the central banker overseeing its development.

Fabio Panetta, a member of the executive board of the European Central Bank, told the Financial Times that one of the key goals of the project was to combat the spread of digital currencies created by other nations and companies.

“If the central bank participates in digital payments, privacy will be better protected … because we are not like private companies,” he said. “.

“Of course, there is the potential threat that could come from others issuing a digital means of payment. . . If someone wants to pay digitally and we don’t offer them a digital means of payment, someone [else] I would. “

He contrasted the digital euro – an electronic version of cash issued by the central bank – with “unstable currencies” such as Facebook’s Diem planned digital currency which would allow users to send money as easily as text messages.

The ECB is recent consultation in a digital euro it was found that people’s biggest concern was that yes erode your privacy. But Panetta said the central bank had tried ways to separate people’s identities from their payment details. “Payment will be made, but no one in the payment chain will have access to all the information,” he said.

The central bank has also tried “offline payments for small amounts, in which data is not recorded outside the payer’s and payee’s portfolios,” he said; transfers of up to € 70 or € 100 could be made via a Bluetooth link between devices.

“For very small amounts, we could allow really anonymous payments, but overall, confidentiality and privacy are different from anonymity,” Panetta said, adding that some controls would be needed on most transactions to prevent the money laundering, terrorist financing or tax evasion.

“It simply came to our notice then [after the event] if the police want to assess whether there has been any illegal activity, ”he said.

Second, nearly two-thirds of the world’s central banks conduct practical experiments on whether to launch digital currencies the Bank for International Settlements.

But commercial banks are worried central bank digital currencies they could erode their deposits, especially in a crisis. Morgan Stanley estimated that up to € 837 billion, or 8% of eurozone bank deposits, could be converted to digital euros.

Some critics have argued that it could also eliminate cash. more than half of German households surveyed recently by the Bundesbank expressed skepticism about the digital euro and frequent cash users were the most dubious.

Panetta said a digital euro would lead to “a fundamental change in the way payments work, the financial system and society at large,” for example, by being “programmable” to allow automated payments, such as road tolls or in a cinema.

But he said the ECB was determined to make sure the digital euro did not undermine the commercial banking system, replace cash, eliminate innovation or become a shadow currency in smaller countries.

To achieve this, he plans to limit the amount anyone can keep to 3,000 euros each or impose a “disincentive remuneration” above that threshold, Panetta said.

The ECB’s governing council will meet next month to decide whether go ahead with preparations and Panetta said it could be ready for use in about five years.

The central bank will also complete its new framework for overseeing private digital currencies and cryptocurrency asset providers later this year, he said.

Cryptographic assets such as bitcoin are “very dangerous animals” that are “used extensively for criminal activities” and consume “a lot of energy,” Panetta warned.

Stable calls like Diem need to be safer as they are backed by foreign exchange reserves, but Panetta said the potential volatility of these reserves created “an inherent instability in the function of these currencies – and for that reason still they are unstable. coins ”.

Regulating and supervising cryptographic assets is difficult “because there is no responsible legal entity,” he said. “It simply came to our notice then. They could be in China. They could be in Switzerland or South America. . . But, to the extent that intermediaries are involved in the supply of these cryptographic assets, we would have regulation and supervision. “

The digital euro should be available in limited amounts for tourists visiting Europe, Panetta said, but the ECB “should reflect very carefully on access and to what extent for foreign users.”

Major central banks are in talks to ensure their digital currencies remain “interoperable,” Panetta said, as this would help “make cross-border payments more efficient and much cheaper.”