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The digital euro will protect consumer privacy, says the ECB executive

The introduction of a digital euro will increase consumer confidence and protect the eurozone from the “threat” of competing cryptocurrencies that could undermine the bloc’s monetary sovereignty, according to the central bank overseeing its development.

Fabio Panetta, a member of the executive board of the European Central Bank, told the Financial Times that one of the main aims of the project was to fight against the spread of digital currencies created by other nations and companies.

“If the central bank engages in digital payments, privacy will be better protected… Because we are not like private companies,” he said. “We have no commercial interest in storing, managing, let alone abusing, user data.”

“Of course there is the potential threat that could come from others issuing a digital means of payment… If people want to pay digitally and we don’t offer them a digital means of payment, someone [else] I would have done that. “

He contrasted the digital euro – an electronic version of the number issued by the central bank – with “unstable currencies” such as Diem, Facebook expected digital currency which would allow users to send money as easily as text messages.

The ECB is recent consultation on a digital euro he found that people’s biggest concern was that he would break it erosion of their privacy. But Panetta said the central bank had tested ways to separate people’s identities from their payment details. “Payment will pass, but no one in the payment chain will have access to all the information,” he said.

The central bank has also tried “offline payments for small amounts, in which no data is recorded outside the payer’s and payee’s portfolios,” he said; transfers up to € 70 or € 100 could be done with a Bluetooth link between devices.

“For very small amounts, we could allow truly anonymous payments, but in general, confidentiality and privacy are different from anonymity,” Panetta said, adding that some controls will be necessary for most transactions to prevent money laundering. money laundering, terrorist financing or tax evasion.

“A payment can be made.” [after the event] if the police want to assess whether there has been any illegal activity, ”he said.

Second, nearly two-thirds of the world’s central banks conduct practical experiments on whether to launch digital currencies. to the Bank for International Settlements.

But commercial banks are worried central bank digital currencies could erode its deposits, especially in a crisis. Morgan Stanley estimated that as much as 837 billion euros, or 8 percent of eurozone bank deposits, could go to digital euros.

It could also squash money, some critics have argued; more than half of the German households surveyed recently by the Bundesbank expressed skepticism about a digital euro and frequent cash users were the most skeptical.

Panetta said a digital euro will lead to “a fundamental change in the way payments, the financial system and society in general work,” for example by being “programmable” to allow automated payments, such as tolls or a cinema.

But he said the ECB was determined to ensure that the digital euro did not undermine the commercial banking system, replace money, disrupt innovation or become a shadow currency in smaller countries.

To achieve this goal, he plans to limit the amount anyone can hold to € 3,000 each or impose “a disincentive remuneration” above that limit, Panetta said.

The ECB’s governing council will meet next month to decide whether to advance with preparations and Panetta said it could be ready for use in about five years.

The central bank will also complete its new supervisory framework for private digital currencies and crypto asset providers by the end of this year, he said.

Chart showing the average amount of cash in the portfolio at the beginning of the day, by country

Cryptographic assets such as bitcoin are “very dangerous animals” that are “widely used for criminal activities” and consume “an enormous amount of energy,” Panetta warned.

So-called stablecoins like Diem are destined to be safer since they are backed by fiat currency reserves, but Panetta said the potential volatility of those reserves has created “an inherent instability in the function of these currencies – and for this reason they are always unstable coins ».

The regulation and supervision of cryptographic assets is tough “because there is no responsible legal entity,” he said. “It’s decentralized. They may be in China. They can be in Switzerland or South America. . . But as long as intermediaries are involved in the provision of these cryptographic assets, then we will have regulation and supervision in place. ”

The digital euro should be made available in limited quantities for tourists visiting Europe, Panetta said, but the ECB “should reflect very carefully on access, and to what extent, for foreign users.” .

Major central banks are in talks to ensure their digital currencies are kept “interoperable,” Panetta said, adding that this would help “make cross-border payments more efficient and much cheaper.”


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