The European data protection watchdog has recommended changes to EU draft legislation for a digital euro in order to boost privacy standards.
With the European Central Bank on Wednesday confirming that it is moving onto the preperation phase of the digital euro, the European Data Protection Board and the European Data Protection Supervisor say that the regulation underpinning a future CBDC should "further clarify" the data protection responsibilities of the ECB and of payment services providers.
In addition, they "strongly recommend" a "privacy threshold" for online transactions so that neither offline nor online low-value transactions are traced for AML purposes.
The watchdogs also question the need for a single access point to verify that the amount of digital euros held by each user does not exceed the maximum amount allowed, arguing that "technical measures allowing for a decentralised storage of these identifiers are feasible, as an alternative".
The ECB is moving onto a two year preparation phase, finalising the digital euro rulebook and selecting providers that could develop a digital euro platform and infrastructure.
It will also include testing and experimentation to develop a digital euro that meets both the Eurosystem’s requirements and user needs, for example in terms of user experience, privacy, financial inclusion and environmental footprint.
After two years, there will be a decision on whether to pave the way for a possible future issuance. However, the ECB stresses that there has still not been a decision on issuance and that will only be considered by the Governing Council once the EU's legislative process is completed.
Christine Lagarde, president, ECB, says: “We envisage a digital euro as a digital form of cash that can be used for all digital payments, free of charge, and that meets the highest privacy standards. It would coexist alongside physical cash, hich will always be available, leaving no one behind.”