THE DIGITAL EURO: A NEW ERA OF PUBLIC MONEY AND PRIVACY PROTECTION IN THE EUROZONE
THE DIGITAL EURO: A NEW ERA OF PUBLIC MONEY AND PRIVACY PROTECTION IN THE EUROZONE

Summary/Abstract: This research examines the development and implementation of the digital euro, a central bank digital currency (CBDC) for retail use, initiated by the European Central Bank (ECB). The primary aim is to analyze how the digital euro can enhance monetary sovereignty, improve the euro area’s payment system, and ensure secure, accessible, and efficient digital payments, with a particular focus on user privacy protection. Since October 2023, the digital euro project has been in its preparation phase, expected to last until 2025, after which a decision on implementation may be made. One of the project’s central challenges is safeguarding user privacy, as public consultations revealed significant concerns regarding transaction surveillance. In response, the ECB is developing a “privacy-by-design” approach, particularly for low-value transactions. Offline payment functionality is being considered, allowing digital euro use without an internet connection or sharing personal data with intermediaries or the ECB. This would provide privacy levels for small payments comparable to cash, while still complying with anti-money laundering and counter-terrorism financing regulations. The digital euro is likely to operate via a hybrid (two-tier) model: the ECB issues the currency, while commercial banks and fintechs(s) provide user services. The digital euro will be built on a hybrid infrastructure combining centralized issuance and control by the ECB with decentralized components handled by intermediaries. The system will be modular, interoperable, and designed with high data protection standards. The digital euro has the potential to strengthen monetary sovereignty and offer a public alternative to private digital currencies. Its success will depend on public trust, requiring a clear regulatory framework, stakeholder engagement, and transparency in both technical and legal system design.

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