The ECB (European Central Bank) is almost sure to choose a centralized approach for its upcoming digital Euro, raising concerns about government surveillance.
Privacy seems to be slipping down the list of priorities for those developing a digital Euro, and analysts believe that the choice of design may make privacy more challenging to achieve.
Although no official policy decisions have been made about the possibility of issuing the Euro in the form of a digital currency, there is undoubtedly momentum behind the proposal. Finance ministers in Europe will address the subject on Monday, and the EC is expected to launch a survey shortly, a possible forerunner to new legislation.
Assuring the privacy of a digital Euro was identified as the top priority in a survey conducted by the ECB in 2021. This is understandable, given that expenditure data may disclose private information about an individual’s lifestyle, preferences, and political preferences.
Ministers of finance from the Eurozone are also expected to weigh in. It is uncertain if they will support new forms of financial secrecy that undermine AML and anti-tax evasion standards. An anonymous digital money would pose “severe problems,” according to an internal policy document viewed by CoinDesk.
That is consistent with the trend in the traditional crypto market, where state governments – including the European Parliament – are also eager to introduce consumer identification checks even for minor BTC transactions, despite industry concerns about privacy invasion.
Concerns Regarding Privacy
The policy document stated the ECB would have accessibility to data records to the degree required to carry out its tasks, such as payment settlement and financial supervision, but that the database of payment data should not be “completely accessible” to a central organization.
Panetta dismissed concerns about state surveillance, telling the European Parliament’s Economic and Monetary Affairs Committee last week that the European Central Bank has “no business interest in using this data” and “will respect privacy laws – in contrast to profit-driven businesses.
He also claimed that the amount of privacy to give – such as whether to enable minor transactions to stay hidden and offline – should be decided by governments and politicians, not central banks stating that “anonymity… is not a technological problem but a political one.” However, experts have challenged his assessment and cautioned that excessive centralization might make absolute privacy challenging to establish.
“As we’ve seen in other states, a government trying to focus that power is not always benign,” Niforos, a cryptocurrency technology expert, noted. State actors “may have less economic objectives, but it does not imply there is no risk of data theft and abuse,” she said.
Additionally, policymakers cannot implement privacy limits arbitrarily but may be contingent on the tech used. However, Niforos cautions that numerous unanswered questions and ambiguity may make the ECB hesitant to pursue a decentralized approach. “Blockchain as a technology confronts multiple challenges” and requires “critical regulatory and legal certainty,” she added.
Centralized Command And Control
Panetta seems to be toying with a centralized system in which people’s assets are housed in central bank accounts, other than a decentralized one in which tokens circulate freely.
“It is not a cure-all. It will need significant reengineering of the ecosystem’s structure,” she added, adding that certain nations’ financial and regulatory institutions are unprepared.
According to the survey by the ECB, many people are unaware of what an electronic euro is and the reason anybody would want one, which is already a significant hurdle for Panetta to surmount.
“For the time being, we see it [the electronic Euro] as a danger rather than an advantage,” Faustine Fleuret, chief executive of the French cryptocurrency industry advocacy organization ADAN, informed CoinDesk.
Fleuret said that the digital euro concept might stifle innovation by usurping, rather than augmenting, Euro stablecoins since it lacks the adaptable protocols required to sustain decentralized finance. When central banks saw the danger presented by the now-bankrupt Libra project, they hastened to issue their virtual currencies.
To prevent companies like Meta from encroaching on their turf, some fear the ECB will jeopardize people’s rights and growth in the European Union.