Digital Euro: digital cash, no surveillance

The European financial landscape is at a turning point: The European Central Bank (ECB) is working on a digital response to the reduction of cash. The European Parliament is currently establishing a legal framework. However, the success of the digital euro hangs by a thread: citizens' trust in their privacy. In a joint statement, the French and German data protection authorities, CNIL and BfDI warn that the digital payment medium will only succeed if it technically replicates the anonymity of coins and banknotes.

At present, European payment transactions are controlled by a few non-European companies. Over 60% of card payments in the eurozone are processed by just two American providers. Visa and Mastercard therefore have a treasure trove of transaction data, which they can extensively evaluate for commercial purposes. The digital euro is therefore intended to be a sovereign counterweight. A public good that will not be based on profit maximization, but on EU values ​​(they say now….).

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For the CNIL and the BfDI, it is clear: the digital euro should improve the status quo, not simply leave another digital footprint. In their work, data defenders demand privacy by design. The European Data Protection Board (EDSA) had already requested in 2021 that users' transactions with the digital euro should not be traceable throughout the entire payment system.

Offline mode as the core of anonymity

According to data advocates, two variants are planned. The “offline mode” is similar to classic e-money systems where payment service providers manage the accounts. Here, the authorities require a strict legal obligation for pseudonymization. Although central banks will operate the infrastructure, they will not “see” the identity of the payers. To prevent any further processing through data matching, the CNIL and the BfDI propose the use of dynamic identifiers that will be regularly updated.

The most innovative element of the project is its “offline mode.” This is a form of digital money that would be stored locally on a smartphone or card and could flow from device to device without a network connection. Data advocates support this approach, which is based on a token architecture. Structurally, this means that no payment history is created at central points: the transaction remains as private as exchanging a 10-euro note at a street market.

Limits

The digital euro should remain a neutral legal tender that ensures its status as a public currency even in the digital space.

To avoid jeopardizing the stability of the banking system, caps on the daily movement of digital euros are being discussed. The ECB is considering limits between 500 and 3000 euros. From the perspective of data protection advocates, these limits should be set practically, everyday transactions should be possible for an amount comparable to the current caps. Some EU countries already have a limit of 1000 euros.

The ECB's timeline calls for testing technical beta versions of the architecture in real-world conditions from early 2027. If all goes according to plan, eurozone citizens will be able to pay with the digital euro from 2029.

Now we will have to see if people use their digital wallet.

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