The European Central Bank is doubling down on privacy claims for its proposed digital euro, but digital-rights advocates remain unconvinced. In an Aug. 24 interview, ECB Executive Board member Piero Cipollone argued the digital euro’s design will prevent the Eurosystem from linking individual users to specific payments — a direct rebuttal to fears that a central-bank digital currency (CBDC) could expand government surveillance. “The digital euro guarantees the maximum level of privacy that current technology can offer,” he said. How the system would work - Online payments: Customer-facing banks and payment service providers would handle identity checks and anti-money-laundering (AML) obligations. The Eurosystem itself would only receive pseudonymized settlement data, which Cipollone says prevents it from identifying payers and payees. - Offline payments: Devices such as smartphones or payment cards could exchange value directly, enabling transactions during network outages. Offline wallets must be pre-funded, so spending offline is limited to the local balance stored on the device. - Settlement model: Rather than running on a public blockchain, the digital euro would use a centralized settlement platform operated by the Eurosystem for processing and verifying holdings and settlements, with payment providers managing customer accounts. - AML checks would be triggered when funds are added to or withdrawn from offline wallets, a process the ECB likens to checks on depositing or withdrawing cash. Where critics say the plan falls short Austrian digital-rights group epicenter.works and allied organizations argue the proposal relies too heavily on institutional promises rather than enforceable, independently verifiable technical safeguards. They call for: - Clear, published privacy thresholds for routine payments; - Public documentation of core mechanisms and open-source code where possible; - Cryptographic protections such as zero-knowledge proofs, threshold cryptography and authenticated encryption to harden privacy against future policy or legal changes. Legislative and pilot timeline - The European Parliament approved its negotiating position (including privacy-by-design measures and offline payments, and proposals for zero-knowledge verification) on July 9 and authorized negotiations with the Council. The Council set its negotiating position in December 2025; both bodies must now agree on a common text and give final approval. - The ECB plans a 12-month pilot in the second half of 2027 and has selected 36 payment providers — a mix of banks and non-bank firms — to test online/offline transfers, merchant payments and user experience. - If lawmakers pass the necessary legislation by the end of 2026, the ECB says it could be ready for a potential first issuance in 2029, although a separate Governing Council decision would be required to proceed. Why it matters for crypto and payments The digital euro aims to combine cash-like privacy for users with the oversight needed to prevent illicit finance — but the balance hinges on whether privacy protections are baked into the system’s technology and code, or left to institutional guarantees and future legislation. The outcome of the 2027 pilot and the final EU rules will determine whether the ECB’s privacy promises become enforceable features or remain policy commitments. Read more AI-generated news on: undefined/news