Loss of privacy is public’s biggest fear as ECB eyes digital currency

Crypto: A digital euro could go up against Bitcoin

Francesco Canepa

April 15 2021 02:30 AM

Losing the anonymity that comes with paying in cash is the biggest concern among the public of a shift to a so-called digital currency, something the European Central Bank (ECB) is considering and which would operate alongside bank notes coins, and existing euro payments.

Unlike electronic payments using the euro, a fully digital currency would likely be more integrated into how the ECB itself operates and therefore potentially subject to a greater degree of surveillance.

A new survey of eurozone citizens by the ECB found people expect any new digital euro to be private, safe and cheap.

Some experts, including former Central Bank of Ireland governor Patrick Honohan have questioned whether there is any real need to create an electronic form of euro, but the ECB is working on the project at least in part in an effort to see off competition from cryptocurrencies such as Bitcoin, Tether and Facebook's proposed Diem.

An ECB poll showed that privacy when making payments, a key feature of cash that some fear will get lost when switching to an electronic means of payment, was the number-one priority for both private individuals and professionals.

"What the respondents want most from a digital euro is privacy (43pc), security (18pc), usability across the euro area (11pc), the absence of additional costs (9pc) and offline use (8pc)," the ECB said in a report presenting the results of its consultation.

A digital euro would give holders a direct claim on the ECB, making it safer than an account held at a commercial bank or a digital wallet.

This has raised some concerns that people, particularly at times of crisis, would shift their savings into digital euros, exacerbating bank runs or even upending the financial sector's business model.

The ECB consultation showed that half of respondents were in favour of introducing a cap on how many digital euro every citizen can own or a tiered remuneration whereby balances above a certain threshold are penalised.

Two thirds of respondents said the electronic cash should be offered by private-sector intermediaries and integrated in the existing payment system and a quarter also wanted it offered as a "smart card" or phone app so that it can be spent offline.

With the design of a digital euro still at an early stage, the launch of the new means of payment is not expected for four or five years.

Other central banks around the world are also working on similar projects, with China already running pilot programmes.