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European Central Bank Advances CBDC Project

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The European Central Bank (ECB) has released a new working paper as part of its 24-month central bank digital currency (CBDC) project. The paper focuses on the technical aspects of a potential digital euro and examines digital economy pain points including financial intermediation, payment options, and privacy. This marks the beginning of the project’s final “investigation phase”, where the possible impact of a digital euro on the market is scrutinized and design options are identified to avoid risks for euro area citizens, intermediaries and the overall economy.

Launched in July 2021, the project aims to develop a safe, efficient, and accessible form of digital central bank money. The ECB’s rationale for a digital euro centers around improving the autonomy of the Euro system, claiming that a CBDC would provide an alternative to foreign payment providers for fast and efficient payments in Europe and beyond. In addition to reaching the “un-banked” and other vulnerable groups, the ECB highlights that a digital euro could be more sustainable as cash transactions decline and online transactions increase, creating new data privacy risks. 

CBDC anonymity 

The ECB notes that while cash provides a certain level of anonymity it cannot be used in more efficient online transactions. In contrast, bank deposits can be used online but do not provide a suitable level of anonymity, enabling banks to extract information from payment flows. 

The ECB’s hypothetical CBDC model is described as having a comparative advantage in providing anonymity “because, unlike private-sector alternatives, it is not subject to profit maximization incentives”.

However, from a public policy perspective, the ECB also notes that full CBDC anonymity is not a viable option. Fabio Panetta, a member of the ECB’s executive board, said in March that full anonymity would “raise concerns about the digital euro potentially being used for illicit purposes.”


While a CBDC may be preferable to traditional electronic payments regarding anonymity, the ECB shared that a digital euro “may become supplanted by payment tokens” issued by large tech firms. These tokens allow merchants to shroud themselves from banks and enable their platforms to stifle competition. 

To combat this, the ECB highlights data-sharing features as the key to stopping CBDCs from becoming crowded out by other payment instruments. “[A] CBDC that allows agents to share their payment data with selected parties can overcome all frictions and achieve the efficient allocation,” the paper said.

Key takeaways

In a response to a public consultation last year, the ECB noted that privacy remains a significant concern for citizens and professionals. 

The ECB continues to emphasize that no final decision has been made on whether a digital euro will be adopted. While the project is due to finish in 2023, the ECB President has stated that if a CBDC was brought out, it would take a further five years to launch a digital euro. Over the next 13 months, further working papers can be expected from the ECB.

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Originally published May 20, 2022, updated May 26, 2022

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