The digital euro will protect consumer privacy, according to the ECB’s executive commitments

The introduction of the digital euro would boost consumer privacy and protect the eurozone from the “threat” of cryptocurrency competitors that could damage the bloc’s monetary sovereignty, according to the central bank that oversaw its development.

Fabio Panetta, a board member of the European Central Bank, told the Financial Times that one of the main goals of the project is to tackle the spread of digital coins 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. “We have no commercial interest in storing, managing, or even abusing user data.”

“Of course, there is a threat that other people can issue a digital form of payment…. If people want to pay digitally and we don’t offer digital payment, someone [else] that would do it. “

He contrasted the digital euro – an electronic version of the money issued by the central bank – with “unstable currencies” such as Facebook’s Diem. projected digital currency this makes it as easy for users to send money as text messages.

Last time of the ECB consultation he found that this would be the biggest concern of the people in a digital euro erode privacy. But Panetta said the central bank has tested ways to differentiate people’s identities from payment details. “Payment will go ahead, but no one in the payment chain would be able to get all the information,” he said.

The central bank has “tested offline payments through small amounts where no data is outside the payer’s and recipient’s wallets,” he said; transfers between € 70 and € 100 can be made using a Bluetooth link between devices.

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

“A payment can be rebuilt [after the event] if the police want to assess whether there has been any illegal activity, ”he said.

According to this, almost two-thirds of the world’s central banks are conducting practical experiments to determine whether to launch digital currencies. International Settlement Bank.

But commercial banks are concerned about that central bank digital currencies it can erode deposits, especially in a crisis. Morgan Stanley estimates that 837 billion euros, or 8% of eurozone bank deposits, could be converted into digital euros.

Some critics have argued that money could also come out. more than half of the German households surveyed by the Bundesbank recently expressed skepticism about the digital euro and were often the most questionable users of cash.

Panetta said the digital euro will bring about a “fundamental change in the way payments, financial systems and society in general work,” for example because they are “programmable” to enable automated payments such as tolls on roads or in a movie theater. .

But he said the ECB was determined to ensure that the digital euro did not weaken the commercial banking system, replace money, discard innovation or turn it into a shadow currency in smaller countries.

To achieve this, Panetta plans to limit the amount that anyone can save to 3,000 euros or to impose “decentralized remuneration” above that threshold.

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

The central bank will complete a new oversight framework for private digital currencies and cryptocurrency asset providers by the end of this year, he said.

Panetta warned that cryptographic assets such as bitcoin are “very dangerous animals” that are “largely used for criminal activities” and consume “a large amount of energy”.

So-called stablecoins like diem are meant to be safer because they are backed by trusted currency reserves, but Panetta said the volatile potential of those reserves created “inherent instability in the function of these coins,” and are therefore still unstable. coins ”.

Regulating and supervising active cryptocurrencies is difficult “because there are no responsible legal entities,” he said. “It’s decentralized. 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, then we would have regulation and oversight. “

The digital euro should be put in a limited amount for tourists visiting Europe, Panetta said, but the ECB “should carefully consider access and the extent to which it will allow foreign users.”

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