With the European Central Bank (ECB) facing mounting criticism over its plans for a central bank digital currency (CBDC) over privacy concerns, European Union data protection regulators have made some recommendations to elevate personal data protection standards for the forthcoming digital euro.
Following the ECB’s announcement that it was moving its digital euro project to the next phase — the “preparation phase” — the European Data Protection Board and the European Data Protection Supervisor issued a joint opinion on the proposed regulation of the digital euro.
Regulators stress on anonymity and privacy safeguards
The proposed regulation by the ECB not only puts a cap on the amount of digital euro held by an individual account, but it also lacks clarification with respect to the verification procedure for the same, the regulators argued. As per the draft regulations, the ECB and national central banks could create a single access point to each user’s data.
However, both regulators have called on the ECB to conduct an assessment to ascertain whether or not that’s necessary.
ECB under fire as proposed digital euro raises privacy concerns
For improved feasibility, the ECB should resort to a more technical approach for the decentralized storage of these identifiers, the authorities suggested. The recommendations come at a time when the ECB is facing flak for neglecting the privacy of users as it limps forward with its CBDC plans. Critics argue that governments could use digital currencies as a surveillance tool.
The lack of foreseeability in the proposed fraud detection and prevention mechanism is another sore point for EU data protection regulators. They propose introducing “less intrusive measures” for data protection.
Both regulators have issued a clarion call for setting up a “privacy threshold” for online transactions, below which offline and online low-value transactions are traced for the purposes of anti-money laundering and for curtailing the financing of terrorism.
It’s worth recalling that the EU Council members greenlit the Markets in Crypto-Assets (MiCA) legislation in May—in a major step towards policing the crypto industry. While MiCA provided the much-needed regulatory clarity, it has also raised concerns about its potential impact on privacy and innovation. Moreover, the EU’s stablecoin regulations have triggered concerns that it could smother crypto adoption in Europe.