The ECB released another working paper on the digital euro, providing an extensive technical analysis of a potential European CBDC and its position in the existing financial system.
Issued on May 13, the working paper aims to study issues like financial intermediation, payment choices and privacy in the digital economy, providing a large number of related algebra-based conclusions.
The study suggests that a “CBDC with anonymity” is preferable to traditional digital payments like bank deposits but it “may become supplanted” by digital currencies, or “payment tokens” issued by technology giants.
“This risk would be particularly tangible if those platforms compete with banks in the market for financial services. However, an optionality for data sharing features may result in a widespread CBDC adoption,” the working paper reads.
According to the ECB, one of the main problems of cash is that it cannot be used for more efficient online transitions while it still preserves anonymity. In contrast, bank deposits can be used online but do not provide enough anonymity.
Finally, digital currencies issued by tech platforms “allow merchants to hide from banks but enable platforms to stifle competition,” the ECB wrote, adding:
The European Central Bank (ECB) continues pushing its central bank digital currency (CBDC) project despite Europeans apparently not feeling too much positive about a digital euro.
“An independent digital payment instrument — a CBDC — that allows agents to share their payment data with selected parties can overcome all frictions […] The introduction of a CBDC with anonymity enables merchants to prevent banks from extracting information from payment flows.”
While the ECB keeps promoting a potential digital euro with anonymity-enabled features, the Europeans are not quite optimistic about any CBDC. According to public feedback from another digital euro consultation, the majority of Europeans are against the adoption of a CBDC in the European Union.
Launched on April 5, the consultation has amassed 14,110 feedback entries at the time of writing, with many opposing the very idea of a central bank-controlled digital currency and associated lack of user privacy. Some online commentators even referred to a CBDC as a “slavecoin,” opposing “digital slavery” potentially introduced by such financial instruments.
“The digital euro in the sense of the EU referral is not compatible with either the protection of privacy or with data protection regulations. […] A control system for the small guarantors requires,” Austrian citizen Schmidl Andreas wrote.
“I’m totally against the introduction of a digital euro because I don’t want to be dependent on the internet when I buy something. I strictly reject the digital euro, because it leads to total control and restricts our fundamental rights and freedoms,” another anonymous user wrote.
As previously reported by Cointelegraph, the question of user privacy has emerged as one of the biggest problems associated with central bank digital currencies. This quickly became a big problem for global regulators and governments as they need to prevent illicit financial activity while also preserving confidentiality.
According to a previous digital euro public consultation released in April 2021, user privacy was considered the most important feature of a digital euro by both citizens and professionals in the European Union.
Related: Proposed digital euro designs lack privacy options, ECB presentation shows
There are a number of other problems associated with a digital euro, including the alleged lack of demand. Jonas Gross, chairman of the Digital Euro Association, told Cointelegraph in April the primary aim of the digital euro is still not clear. Last year, regulatory executive Pablo Urbiola at Spanish bank BBVA argued that it was not exactly clear what kind of customer demand the digital euro was supposed to meet.
According to European Commission finance chief Mairead McGuinness, the ECB still expects a prototype CBDC sometime in late-2023.