The ECB advances in the preparation phase of the digital euro: privacy, offline functionality, and sustainability are at the center of the project.
A new report from the European Central Bank (ECB) summarizes the progress and key points of the preparation phase for the digital euro project, which began in October 2023 and is expected to conclude in October 2025.
For the ECB, the digital euro aims to modernize central bank money, adapting it to current payment preferences and strengthening Europe’s autonomy. According to the central bank, the digital euro will be an electronic means of payment, complementary to cash, available to all citizens in the euro area.
However, some critics point out that the introduction of the digital euro could accelerate the disappearance of cash, limiting citizens’ freedom of choice and increasing control over transactions.
Focus on privacy
According to the report, the protection of user privacy and data will be central to the digital euro. The ECB will adopt a “privacy by design” approach: offline payments will ensure a level of confidentiality comparable to cash, while for online payments, technical solutions such as pseudonymization, hashing, and encryption have been developed, preventing the bank itself from directly linking transactions to specific individuals. Additionally, the entire system will be designed to strictly comply with European data protection regulations, particularly GDPR and EUDPR.
Despite assurances about privacy, some citizens believe that the digital euro could turn into a tool for mass financial surveillance, used to track and profile people’s spending habits.
Offline functionality
An innovative aspect of the digital euro will be its ability to function offline, allowing payments without the need for an internet connection. The ECB is also exploring the use of technologies such as NFC and secure elements in mobile devices to implement this feature. Simultaneously, alternative solutions like smart cards are being evaluated.
Environmental sustainability
The ECB is paying particular attention to the environmental impact of the digital euro. During the preparation phase, thorough analyses are being conducted to assess and minimize the ecological consequences of the project. Algorithms with high energy consumption, such as Proof of Work, are therefore excluded. Additionally, the ECB has included specific requirements in the tender bids for external providers to ensure eco-friendly design solutions.
Next steps
In the coming months, the ECB’s work will continue according to the established timeline for the preparation phase. The bank will launch procurement processes for external components of the system and will continue to develop other elements of the digital euro internally.
A new progress report is expected in autumn 2024. The final decision on issuing the digital euro will be made by the ECB’s Governing Council only after the completion of the preparation phase, expected by the end of 2025.
Despite the ECB’s dedication to the project, questions arise about the real benefits and advantages of the digital euro for consumers compared to current payment systems.
Furthermore, some experts caution about the risk that the digital euro could destabilize the traditional banking system and the new possibilities of potential introduction of this tool: programmability, time-limited money, and imposition of negative interest rates.
