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Central bank digital currencies (CBDCs) have had quite a few growing pains. Somehow all the significant problems start with the letter “p” – privacy, programmability, and, above all, politics.
Privacy is especially problematic with CBDCs issued for retail payment use in developed economies, including the so-called “digital euro.”
Dea Markova is a managing director and head of digital assets at Forefront Advisers.
In end-June, the European Commission proposed legislation on the digital euro, so that it could be issued legally should it ever be issued. The European Central Bank has been investigating the possibility of a digital euro, and this October it will near-certainly conclude that the investigation has been a success, and a realization phase will begin. How long will that phase last – only politics can tell.
In public consultations on the digital euro, privacy came up as the most important feature for both citizens and professionals.
Why is privacy a problem? We talk about privacy because most CBDCs would be issued as a blockchain-based token which allows the issuer, i.e. the central bank, to have all the data on how this token changes hands. Europe is not even formally committing to using tokenization, and privacy concerns are one of the reasons for this.
Legally, however, it is extremely unlikely that mass surveillance will ever be permissible by a G7 central bank. The EU rulebook will certainly make sure this is not the case.
Institutionally, the ECB has zero interest and insufficient resources to launch a CBDC so it can snoop on the individual spending decisions of eurozone citizens. To argue otherwise is unsubstantiated speculation, inconsistent with the way the ECB behaves.
Technologically, privacy in online payments can be convincingly safeguarded. The ECB has made it extremely clear that the digital euro will be distributed via intermediaries, just like normal euros are. Thus, the information on individual digital euro payments will be shielded from the ECB, just like normal digital payments are.
A core principle of the digital euro is that the ECB and the payment service providers shall implement technical and organizational measures, including state-of-the-art security and privacy-preserving safeguards, to ensure the identities of digital euro users cannot be accessed by the ECB via its front-end solution.
Actually, tokenized payments even between identified wallets give more options to create privacy protections, not less. The legislation itself requires the ECB to explore pseudonymization or encryption to preserve privacy.
SOURCE:The Digital Euro Isn’t a Threat to Data Privacy (coindesk.com)
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