Following the European Central Bank(ECB) to progress the digital euro to the ‘preparation phase’, German newspaper Frankfurter Allgemeine Zeitung set out to learn more about the central bank digital currency (CBDC). During an interview, Burkhard Balz. Executive Board of the Deutsche Bundesbank, talked about potential delays in the passage of laws to support the digital currency.
The first draft of the digital euro legislation was published in June.
When asked why the digital euro is taking so long, the central banker’s initial response was legislation. “We have to wait for the political decisions to be made. This is not something the Governing Council of the ECB can decide on its own,” he said.
There’s a key timing issue because of Parliamentary elections next year.
He continued, “Looking at the complexity of this issue and the legislative procedure, one might have doubts, at least, as to whether the political process will be completed before the June 2024 election.”
“If not completed, the legislative procedure will start again from scratch with the new Parliament.”
Digital euro privacy
If there’s a delay in the legislation, this could impact the design of the digital euro. Privacy is a particularly sensitive topic.
The digital euro design assumes it will be two tier, with banks and payment providers interacting with consumers. Only these institutions will access their clients’ private data, not the central bank. Instead, the central bank will store all transaction data pseudonymously. In other words, rather than storing the payer and payee names, transactions will have identifiers that have no obvious link to an individual.
A recent opinion by the European Union data watchdogs requested changes to the draft legislation. In their view, the wording of the current draft makes pseudonymity optional rather than obligatory. This was one of several areas where they felt the draft law gave the ECB too much flexibility. Additionally, like physical cash, they want all low value transactions to be anonymous.
Parliamentary hurdles
Privacy was also a key topic during the first parliamentary debate on the digital euro, where there was considerable pushback by certain groups. Some Members of the European Parliament (MEPs) expressed concerns about privacy, state control, and the role of commercial banks. MP Annemans (Belgium -ID) described the digital euro as another step towards a “fully controlled society”, by enabling the surveillance of users’ income and expenditure.
However, others were more supportive. For example, some thought a digital euro could encourage private banks to let customers benefit from interest rate hikes, were it allowed to compete with private bank deposits. MEP Hohlmeier (Germany -PPE) also highlighted the interoperability and cross-border payment features, pleading for a flexible regulatory framework to support future innovation.
Assuming the passage of legislation before the elections, the ECB will be able to make a launch decision in late 2025. However, if the current parliament fails to approve a digital euro law, the legislation might need to wait until 2025. That makes a 2025 launch decision unlikely.
