The ECB has released another Digital Euro Working Paper, which provides an extensive technical analysis of a potential European CBDC and its position in the current financial system.
Released on May 13, the working paper aims to explore issues such as financial intermediation, payment choice, and privacy in the digital economy, and contains a large number of related algebra-based findings.
The study suggests that “CBDC with anonymity” is preferable to traditional digital payments such as bank deposits, but “may be displaced” by digital currencies or “payment tokens” issued by tech giants.
“This risk will be especially tangible if these platforms compete with banks in the financial services market. However, the optionality of data exchange functions may lead to the widespread adoption of CBDC,” the working paper says.
According to the ECB, one of the main problems with cash is that it cannot be used for more efficient online transfers while maintaining anonymity. On the contrary, bank deposits can be used online, but they do not provide sufficient anonymity.
Finally, digital currencies issued by tech platforms “allow merchants to hide from banks, but allow platforms to stifle competition,” writes the ECB, adding:
The European Central Bank (ECB) continues to push its central bank digital currency (CBDC) project despite the fact that Europeans do not seem to be too positive about the digital euro.
“An independent digital payment tool – CBDC – that allows agents to share their payment details with selected parties can overcome all friction […] The implementation of CBDC with anonymity allows merchants to prevent banks from extracting information from payment flows.”
While the ECB continues to promote a potential digital euro with anonymity features, Europeans are not very optimistic about any CBDC. According to public feedback from another digital euro consultation, most Europeans oppose the adoption of a CBDC in the European Union.
The consultation, launched April 5, has garnered 14,110 reviews as of this writing, many of which oppose the very idea of a central bank-controlled digital currency and the resulting lack of user privacy. Some online commentators have even referred to CBDC as a “slave coin”, opposing the “digital slavery” that such financial instruments could potentially introduce.
Why don’t you read citizens’ comments? 100% of citizens are against CBDC. This is a mass surveillance freak show nightmare. Programmable expiration date. Negative interest rates. Freedom killer. https://t.co/leJJ64UMn9 — Bitcoin Comfy (@BitcoinComfy) May 13, 2022
“Digital euro in the sense of circulation within the EU is not compatible with either privacy protection or data protection regulations.[…] A system of control over small guarantors is required, ”wrote Austrian citizen Schmidl Andreas.
“I am categorically against the introduction of a digital euro, because I do not want to depend on the Internet when I buy something. I categorically reject the digital euro because it leads to total control and restricts our fundamental rights and freedoms,” wrote another anonymous user.
As previously reported, the issue of user privacy has become one of the biggest concerns regarding central bank digital currencies. This has quickly become a big issue for global regulators and governments as they need to prevent illicit financial activity while maintaining privacy.
According to the previous digital euro public consultation published in April 2021, user privacy was considered the most important feature of the digital euro by both citizens and professionals in the European Union.
Related: Proposed digital euro projects lack privacy options, ECB presentation reveals
There are a number of other problems associated with the digital euro, including an alleged lack of demand. Jonas Gross, chairman of the Digital Euro Association, told Cointelegraph in April that the main purpose of the digital euro is still not clear. Last year, regulator chief Pablo Urbiola of Spain’s BBVA bank argued that it wasn’t entirely clear what consumer demand a digital euro should meet.
According to European Commission CFO Mairead McGuinness, the ECB is still expecting a prototype CBDC to arrive sometime in late 2023.