The European financial landscape is facing a turning point: The European Central Bank (ECB) is working on a digital response to the decline of cash, for which the EU Parliament is currently laying down a legal framework. However, the success of the digital euro hangs by a thread: the citizens’ trust in their privacy. In a joint statement, the French and German data protection authorities, the CNIL and the BfDI, warn that the digital means of payment will only stand a chance if it technically replicates the anonymity of coins and banknotes.
Currently, European payment transactions are controlled by a handful of non-European corporations. Over 60 percent of card payments in the eurozone were recently processed by just two US providers. Visa and Mastercard thus sit on a treasure trove of transaction data, which they can extensively evaluate for commercial purposes. The digital euro is intended to form a sovereign counterweight here: a public good based not on profit maximization, but on the values of the EU.
For CNIL and BfDI, it is clear: the digital euro must improve the status quo, not just leave another digital trace. In their paper, the data protectionists demand Privacy by Design, whereby privacy is directly anchored in the technical architecture. In principle, the European Data Protection Board (EDSA) already demanded in 2021 that user transactions via the digital euro should not be traceable throughout the entire payment system.
Offline mode as the core of anonymity
According to the data protectionists, two variants are currently planned. The “Online mode” is similar to classic e-money systems where payment service providers manage the accounts. Here, the authorities demand a strict legal obligation for pseudonymization. Although the central banks operate the infrastructure, they should never see the identity of the paying individuals. To prevent later de-pseudonymization through data matching, CNIL and BfDI propose the use of dynamic identifiers that are regularly renewed.
The most innovative element of the project is the “Offline mode”. This is a form of digital money that is stored locally on a smartphone or card and can flow from device to device without a network connection. The data protectionists support this approach, which is based on a token architecture. Structurally, this means no payment histories are created at central points: the transaction remains as private as exchanging a 10-euro note at a flea market.
Expert reports confirm that such a solution is technically feasible and at the same time minimizes risks such as spending the same digital unit multiple times (double spending). This mode would primarily be intended for proximity payments below certain upper limits and represents the actual “digital cash”.
Holding limits
Another cornerstone of the European strategy is non-programmability. Unlike digital currencies in other regions, such as the digital yuan, the digital euro will not be able to be linked to conditions. There will be no expiry dates or restrictions on specific product groups. This keeps it a neutral legal tender that secures the status of public currency even in the digital space.
To avoid endangering the stability of the banking system, upper limits for holding digital euros are being discussed. The ECB is currently examining limits between 500 and 3000 euros. From the perspective of data protectionists, these limits must be set practically: everyday transactions should be possible up to an amount comparable to current upper limits. Some EU countries have already set the limit at 1000 euros here.
The ECB’s timeline envisages testing technical beta versions of the architecture under real conditions starting in early 2027. If everything goes according to plan, citizens in the eurozone could be paying with the digital euro from 2029. Whether they will actually pull out their digital wallet then will also depend on whether the ECB follows the recommendations of data and consumer protection advocates. Accordingly, it should create a payment system that transfers the freedom of cash to the digital world.
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