Trade-offs between regional institutions are expected to shape the final form of the digital euro, as debate continues over the retention of restrictions and privacy features.
The EU Council recently announced that it supports the European Central Bank's digital euro design, which includes both online and offline functionality.
“Cash-like privacy” with anti-money laundering rules is one of the “toughest political trade-offs” of a digital euro, said Apostolos Tomadakis, head of financial markets and institutions at the European Policy Research think tank.
He told Cointelegraph that he hopes European lawmakers and the ECB can find a compromise.
“Parliament will have to accept some form of online digital euro (at least for day-to-day retail use), but[the European Central Bank and the EU Council]will have to make concessions on stronger and operationally enforceable privacy guardrails,” he told Cointelegraph.
The Digital Euro is the European Union's planned central bank digital currency (CBDC). The debate over the development of CBDCs is intensifying globally as policymakers weigh the rise of stablecoins and other pressures on existing systems.
European Parliament. sauce: Dirif under CC BY-SA 3.0
Related: ECB eyes on-chain payments next year as lawmakers consider privacy in digital euro
Level of privacy is still subject to change
A European Commission representative told Cointelegraph that although the Commission “cannot speculate on the outcome of the deliberations,” there are several aspects that are unlikely to change.
“Many key features of the European Commission’s proposal appear to be generally supported across stakeholders, including the status of a digital euro as a legal tender, offline functionality, strong privacy and data protection safeguards, and aspects related to financial inclusion.”
Other aspects that may continue to change include the level of privacy expected from an online digital euro, acceptance rules and exemptions, and details of service provider remuneration, Thomadakis said. Finally, he said that limits on holdings of the digital euro, aimed at preventing deposits from leaving banks, have not yet been determined.
Mireia Lambrich-Anto, financial services assistant at the European Consumer Agency, a European consumer advocacy group, noted that the current consensus is for a dual online-offline model that supports resilience and privacy while setting limits to maintain the current financial system.
Ant told Cointelegraph that he expects privacy-enhancing measures and the assignment of fiat status.
Related: Crypto asks SEC to understand the benefits of blockchain privacy tools
CBDC development accelerates
EU officials have long expressed concerns about the impact of stablecoins on their markets.
In early September, ECB President Christine Lagarde warned of redemption risks and euro outflows, and called on EU lawmakers to close gaps in foreign stablecoin regulation. An adviser to the European Central Bank has previously called for global cooperation to regulate stablecoins and prevent the domination of the US dollar.
Tomadakis explained that if the legal work “goes significantly beyond 2026, the ECB's schedule will collapse.”
This is because pilot projects and rollouts depend on the introduction of a legal framework, and “if regulations are not in place, there will be no obligation for seller acceptance.”
According to the Atlantic Council, at least 137 countries and monetary union groups representing 98% of global GDP are considering CBDCs to some extent. According to the think tank, the ECB's digital euro aims to strengthen the euro's international role.
China's digital renminbi is often cited as one of the most advanced programs among major economies. Starting in 2026, China's central bank will start allowing commercial banks to pay interest on CBDC wallets.
