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EBAday 2021: Why privacy is key to progressing a digital euro

EBAday 2021: Why privacy is key to progressing a digital euro

The European Central Bank (ECB) president Christine Lagarde first told reporters in March 2021 that the delivery of a digital euro would be decided upon within months, and suggested that four years would be a realistic timeframe for the development and issuance of a digital euro. However, the decision to pursue it has yet to be made by the ECB Governing Council, which will base its decision on its own preliminary work, and recently released responses to its public consultation.

Over 8000 responses were received during the consultation process, with 43% of users citing that what they want most from a digital currency is privacy. This was followed by security (18%), the ability to pay across the EU (11%), no additional costs (9%) and offline usability (8%).

If the ECB can effectively address these concerns, particularly around privacy, it may be able to eliminate the core hurdle standing in the way of a digital euro’s development and issuance.

In light of the responses to the ECB’s consultation paper, Fabio Panetta, member of the executive board of the ECB was positive, stating: “the record level of participation in our public consultation and the willingness of citizens and professionals to support a digital euro are encouraging. Their responses show the high expectations that prospective users have for a digital euro and provide valuable input for our work.”

The ECB President told reporters that launching a digital euro is “a technical endeavour as well as a fundamental change. We need to make sure that we do it right. We owe it to the Europeans; they need to feel safe and secure.”

Lagarde argued that Europeans need to know that they are holding the equivalent of a central bank backed digital bank note, with the same level of security. “We need to also make sure that we are not going to break the system but to enhance the system.”

This shouldn’t be a concern according to the ECB’s Panetta, who emphasised that a digital euro would in fact increase privacy in digital payments. Dismissing concerns about data protection, Panetta furthered that as a public and independent institution, the ECB has no interest in monetising or even collecting users’ payment data.

“A digital euro would therefore allow people to make payments without sharing their data with third parties, other than what is required by regulation. This differs from private payments, where services are generally offered in exchange for personal data that are then used for commercial purposes.”

“Our preliminary experimentation on a digital euro is showing promising results on how technology can be used to protect user privacy without relaxing standards against illicit activities.”
Lagarde also raised that certain intermediaries – that is, banks – are apprehensive about what the issuance of this digital euro may mean for them, noting that they should not be concerned.

“The central bank is not going to invent itself as a client manager, as a risk assessor for the granting of credit lines. Those intermediaries will continue to co-exist, to develop their business and conduct their activities with cash which will continue to be available as will digital currency.”

“If you just observe how people have behaved during Covid-19, they way in which they’ve changed the way they buy, the way they order the way they get their food, the way they pay. It is moving in a digital dimension which we should not be afraid of. And which should provide safe, solid and secure payment mechanism too Europeans and others.”

Under the auspices of the Bank for International Settlements (BIS), the ECB is part of a core group of central banks including the Bank of Canada, Riksbank, the Bank of Japan, the Swiss National Bank, Bank of England (BoE) and the Fed, who are jointly exploring CBDC.

Both the ECB and BoE are championing the need for collaboration on digital currency, raising the question of whether progress on by one central bank might signal imminent news by the other.

Senior manager in the BoE’s CBDC Unit, Shiv Chowla, told Finextra Research that in terms of working with other central banks to develop a sound digital currency solution, “we also recognise the value both bilaterally and multilaterally from sharing information and collaborating to understand each other's experiences.”

Yet, Chowla also emphasised that that there is no inevitability when it comes to CBDC. “For some central banks, the answer will be affirmative, for others it won’t be. Clearly each individual central bank has its own set of considerations and timeline.”

CBDCs and stablecoins will be a core topic discussed at the Euro Banking Association and Finextra’s EBAday 2021. Running in digital format on 28-30 June for its sixteenth year, the event will welcome a host of board directors, chief executive officers and payments and technology heads from Europe’s leading banks, as well as selected fintechs and registration is now open.

Comments: (1)

A Finextra member
A Finextra member 05 May, 2021, 11:04Be the first to give this comment the thumbs up 0 likes

The ECB sems to want a market where banks are expected to issue credit to end users while deposits and payments made from those are to be managed by the central bank. This makes banks 100% dependable on funding their lending with a mix of equity and refinancing themselves through money market lending in contrast to the stability requirement in place that urges banks to increase deposits to finance lending. Furthermore the ECB thinks that the bank payment systems reveal the payments data of their customers to third parties and the ECB needs to step in and manage payments in order to protect customer privacy? What about age old banking secrecy requirements and the new GDPR? Today a large number of banks and payment institutions offer multiple payment services to the payers and payees and the ECB is supposed to replace that large pool of choice and competition with their solution?