The European Central Bank plans to allow blockchain-based settlement in central bank money next year and is preparing to issue a digital euro, but its privacy safeguards will ultimately depend on approval from EU lawmakers.
ECB executive board member Piero Cipollone said in a Friday statement that the institution will “make it possible to settle transactions based on [DLT] in central bank money” next year. He also said the ECB is “getting ready” to issue the digital euro and to link its system internationally for cross-border payments.
The digital euro underlying infrastructure would also be available to other institutions to settle transactions with other central bank digital currencies (CBDCs). The executive said that holding limits and a lack of interest are expected to “preserve banks’ role in “credit intermediation and monetary transmission.”
Assuming legislative approval in 2026, initial transactions with the digital euro could follow in 2027, with readiness to issue the CBDC in 2029. In Thursday statements, ECB President Christine Lagarde said the ECB’s work is over and that the digital euro design, including its privacy features, lies with EU lawmakers. Cipollone shared the ECB vision:
“The digital euro would be available both online and offline, supporting resilience and privacy.“
According to Cipollone, a CBDC is needed due to the EU’s fragmented retail payment ecosystem, slow cross-border payments. He also explained that without a CBDC, tokenization and DLT would lead to fragmentation and increased credit risk. A tokenized digital euro will also be available for the digital asset market, presumably to prevent this fragmentation.
Cipollone acknowledged that stablecoins offer a solution to slow, costly cross-border payments, but also introduce risks to currencies and financial systems. Furthermore, “if dollar-based stablecoins were to expand, [...] they could erode the international role of the euro.”
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A private CBDC that works offline
The ECB’s 2023 opinion is that the digital euro should not be programmable in a way that restricts what it can be spent on, while still allowing for conditional payments. The ECB also noted that “for the offline model of the digital euro, the ECB welcomes that the envisaged level of privacy and data protection would be similar to cash.” The parallels to cash do not end here:
“The offline digital euro model would ensure that not all transactions are necessarily validated by a third party, thereby meeting the data protection requirements of proportionality and necessity.“
The offline variant of the digital euro would be stored locally, allowing device-to-device payments without requiring an online ledger check. The ECB discusses using the secure element in mobile devices to store offline digital euro and considers smart cards — reminiscent of cyberpunk credit chips.
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EU’s surveillance push
Those recommendations are in stark contrast to the recent attacks on privacy by the EU, whose legislators must approve the CBDC blueprint. Last month, the European Commission unsuccessfully attempted to mandate private message scanning yet again.
An internal Nov. 27 EU document published earlier this month by German-language news outlet Netzpolitik appears to show that member states view sweeping data retention positively. The document discusses companies logging “who communicated with whom, when, where and how,” mentioning “location data” 11 times.
The EU’s AML Handbook, published in May, bans “crypto-asset accounts allowing anonymisation of transactions,” and “accounts using anonymity-enhancing coins from 2027. This followed the EU Innovation Hub taking issue with crypto privacy-preserving technologies in June 2024.
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