In October 2020, the European Central Bank (ECB) published a report on a digital euro and in October 2021, following initial consultation with the public and preliminary analysis, it commenced its two year investigation phase of a digital euro project. Together with the European Commission, the ECB continue to review the possible introduction of a digital euro.
The proposal of a digital euro is in reaction to the growing popularity of cryptocurrency with a digital euro considered to be more stable. However, Fabio Panetta (a member of the executive board of the ECB) recently commented that for a digital euro to maintain the accessibility and usability of central bank money, people need to be able and willing to use it, highlighting the importance of the ECB’s and European Commission’s investigations into the implementation of a digital euro.
On 5 April 2022, the European Commission launched a consultation aimed at financial industry professionals to obtain specialist input on implementation of the digital euro including input around anti-money laundering (AML) and counter terrorist financing (CFT).
With payment privacy being one of the biggest concerns arising from the public consultation conducted by the ECB during October 2020 to January 2021, lawmakers are faced with the challenge of balancing public interests in privacy and the need for transparency to prevent illicit use of digital currency and address AML and CFT concerns.
On 30 March 2022 Fabio Panetta commented that the ECB are considering solutions to enable the digital euro to provide greater privacy and indicated that one option could be for regulatory measures to be applied on a proportionate basis. For example it may be easier to prioritise privacy for lower value payments which represent a reduced money laundering and terrorism financing risk. However, the vote of European Parliament members on 31 March 2022, in favour of controversial new rules preventing anonymous crypto transactions regardless of their value as part of the EU’s continued AML efforts, definitely casts doubt on whether a more proportionate regime would be approved and implemented for the digital euro.
The consultation to financial industry experts closes on 14 June 2022. Following this, draft legislation could be tabled as early as next year with the ECB expecting to start work on a prototype of the digital euro at the end of 2023. If the ECB do succeed in striking an appropriate balance between individual privacy and payment regulation, the roll-out of a digital euro would be a huge development for payment innovation and individual financial freedom.
For more information on this article, please contact Harriett Strange or Hannah Pettit.
