The European Union (EU) data protection agencies have raised concerns regarding possible privacy issues related to the proposed digital euro. In a joint release on October 18, the European Data Protection Board (EDPB) and the European Data Protection Supervisor (EDPS) shared their opinion on the Central Bank Digital Currency (CBDC) known as the digital euro. They acknowledged the benefits of the CBDC, such as providing individuals with online and offline methods to spend the euro on the blockchain and offering an alternative to cash. However, they also highlighted the need to address certain loopholes in the proposal.
Privacy Concerns with the Proposed CBDC
The EDPB and the EDPS expressed satisfaction with certain aspects of the digital euro’s data protection measures, including the modalities used in processing user data. However, they raised concerns about a single access point that would be implemented by the European Central Bank (ECB) and local banks to verify user ownership of the required amount. The agencies fear that this could potentially lead to data privacy breaches due to the role of identifiers in the process. The ambiguous terms and powers of these identifiers have brought their effectiveness into question, along with the single access point itself.
The fraud detection and prevention mechanism (FDPM) included in the proposed regulation also received scrutiny from data regulators. The lack of clarity in its description raises concerns about potential privacy violations. The EDPB and the EDPS recommend the establishment of a better framework with limited data collection to address these issues.
Protecting Privacy in Online Transactions
To safeguard user privacy, the EDPB and the EDPS propose a “privacy threshold” for online transactions. This threshold establishes that offline and low-value transactions should be protected from investigations related to anti-money laundering (AML) efforts and other crime-fighting activities.
Furthermore, the agencies call for the European Central Bank (ECB) to take a stronger stance on clarifying data protection measures throughout all phases of implementing the digital euro. They emphasize the importance of maintaining data privacy to build user trust and encourage wide adoption of the digital currency.
Amidst the global push to introduce CBDCs, concerns about potential government surveillance and control have arisen. Irene Loizidou Nicolaidou, the Deputy Chair of the EDPB, stresses that user data privacy is crucial throughout the entire process of CBDC adoption.
Opponents of CBDCs have described them as tools for government control and have urged lawmakers to resist their implementation. Florida Governor Ron DeSantis, for instance, has promised to ban CBDCs if elected president and has criticized Joe Biden’s stance on cryptocurrencies.
