As conversations surrounding the digital euro gain momentum, European data protection authorities have stepped forward to share their perspective. The European Data Protection Board and the European Data Protection Supervisor jointly issued a statement outlining recommendations aimed at enhancing the data protection features of the proposed central bank digital currency (CBDC).
A push for more robust data protection
One of the key recommendations from both authorities suggests an overhaul of the verification process for how much digital euro an individual can hold in their account. Currently, the draft guidelines from the European Commission, proposed in July 2023, allow the European Central Bank (ECB) and national central banks direct access to each user’s data. This centralized approach has raised eyebrows among the regulators. They propose that an assessment be conducted to determine the necessity and proportionality of such singular access points for user data. Moreover, they suggest the possibility of employing decentralized storage for these identifiers to minimize data privacy risks.
Seeking alternatives for fraud prevention
In addition to this, the joint statement pointed out significant gaps in the proposed fraud detection and prevention mechanism. The regulators recommend the consideration of “less intrusive measures” for fraud detection from a data protection standpoint. Additionally, the authorities advised establishing a “privacy threshold” for online transactions, a limit below which neither offline nor online low-value transactions would be subject to Anti-Money Laundering (AML) or combating the financing of terrorism (CFT) tracking. The exact amount for this threshold remains undisclosed, referred to vaguely as covering “low-value daily transactions.”
The timing of these recommendations is notably in sync with the ECB’s announcement regarding the “preparation phase” for the digital euro. The preparation phase, slated to last two years, aims to finalize the rules surrounding the digital currency and identify possible issuers. Consequently, these latest recommendations could serve as crucial guiding principles in the development of the digital euro, given the heightened focus on individual data protection and secure transactional frameworks.
Besides the focus on data protection, the recommendations from European authorities appear to aim at a balanced approach. This includes addressing the need for secure transactions while ensuring the protection of individual data. Hence, the ECB and other involved national banks now have a comprehensive set of suggestions to consider, not only for the technological aspects of the digital euro but also for its ethical considerations.
Significantly, the dialogue surrounding the digital euro has expanded to include important elements of data privacy. This could be a pivotal moment, with data protection authorities offering tangible recommendations for one of the most anticipated digital currency projects in the European Union.