With the European Central Bank (ECB) progressing with plans for a digital euro, security and privacy need to be a foremost priority in order to bolster mainstream adoption. 

Announcing the plans, the ECB noted that the digital euro will provide the “highest level of privacy”, as they sought to dilute criticisms, which mainly stemmed from the most common CBDC sceptics. 

Dr. Alisa DiCaprio, Chief Economist at R3, addressed some of these privacy concerns, as well as the need for a defined regulatory framework for a digital euro. 

She told Payment Expert: “As we enter the next stage of the digital euro roadmap, developing a model that upholds individuals’ security and privacy should be a top priority for the ECB.

“One current significant challenge facing CBDCs is a lack of clear regulation, which creates uncertainty and a reluctance to engage with the technology. The European Commission published its legislative plans to underpin a digital euro back in June and we expect to see further regulatory clarity following the European elections next year.

“I hope to see the EU and ECB embrace smart and specific regulations, such as an intermediated model, which would mean that the ECB would not record retail transactions. Instead, commercial banks would offer accounts or digital wallets to facilitate the management of CBDC holdings.”

CBDC development has rapidly progressed over the last year with a large majority of countries investigating and/or launching pilots for their own native digital currencies. 

A Bank of International Settlements (BIS) report in the summer revealed that 93% of 86 surveyed central banks across the world are currently working on or are in advanced stages of their CBDC programmes. 

However, the ability to easily track and trace CBDC transaction data, along with a new frontier for fraudsters and scammers to use the technology to commit attacks. 

Despite these concerns, CBDCs have often been viewed as the next evolution in the digitisation of money which could have profound developments in terms of the ability to send and transact money instantaneously. 

Christine Lagarde, President of the ECB, stressed the importance of looking into the future of currency as a way to keep up-to-date with the evolving financial landscape as a means for the exploration into CBDCs. 

She stated: “We need to prepare our currency for the future. We envisage a digital euro as a digital form of cash that can be used for all digital payments, free of charge, and that meets the highest privacy standards. 

“It would coexist alongside physical cash, which will always be available, leaving no one behind.”

The ECB maintains that the end of the preparation phase in 2023 does not mean that the issuance of the digital euro is a certainty, as the Governing Council will consider all variables, such as design adjustments, before the next phase can commence.