Experts suggest that the digital euro’s future depends on a political compromise between those that want to protect privacy and others who want to improve online functionality.
As discussions continue regarding holding limits and privacy features, trade-offs between local institutions are likely to affect the eventual form of the digital euro.
The European Council recently expressed its support for the European Central Bank’s proposal for an online and offline digital euro.
Apostolos Thomadakis, who is responsible for the financial markets and institutions unit at the European Policy Studies think tank, says that “cash-like privacy” with anti-money laundering measures is one of the “hardest political tradeoffs” for the digital euro.
Privacy, holding limits, and legal design still undecided
Parliament will probably have to accept some kind of online digital euro (at least for everyday use), and the [European Central Bank and EU Council] will have to give in on stronger, operationally enforceable privacy guardrails.
The digital euro is the European Union’s intended central bank digital currency (CBDC). There has been a lot more talk about CBDC developments around the world as governments think about the rise of stablecoins and other problems with current systems.
The level of privacy may yet change
Organisation “cannot speculate on the outcome of the deliberations,” but there are some things that are unlikely to change.
There seems to be general support among stakeholders for a number of key features of the Commission proposal, such as the digital euro’s status as legal tender, its ability to work offline, strong privacy and data protection safeguards, and aspects related to financial inclusion.
The online digital euro’s privacy level, acceptance rules, exceptions, and service provider payment details are all uncertain. Lastly, he noted that the restrictions on how many digital euros can be held, which are meant to stop deposits from leaving banks, have not yet been set.
Mireia Llambrich Anto, a financial services assistant at the European Consumer Organisation, said that the present agreement is for a dual model that works both online and offline and protects privacy and resilience. There should also be holding restrictions to protect the current financial system.
CBDC momentum accelerates as stablecoin risks rise
For a long time, EU officials have been worried about how stablecoins could affect their own markets.
Christine Lagarde, the president of the European Central Bank, told EU lawmakers in early September to fix gaps in foreign stablecoin regulation. She warned of risks of redemption and euro outflows. A European Central Bank expert had earlier urged worldwide cooperation to control stablecoins and stop the US dollar from becoming the most powerful currency.
This is because pilot programs and rollouts depend on the existence of a legal framework, and “merchant acceptance obligations also cannot bite without the regulation in force.”
The Atlantic Council says that at least 137 countries and currency union organisations that make up 98% of the world’s GDP have looked into CBDC in some way. The think tank asserts that the ECB’s digital euro aims to enhance the global significance of the euro.z
China’s digital yuan is one of the most sophisticated projects in the world. Starting in 2026, China’s central bank will let commercial banks pay interest on their CBDC wallets.