Paying interest on or charging fees for the use of a digital euro would be prohibited according to a draft law set to be proposed by the European Commission on June 28. The proposed central bank digital currency (CBDC) should be available for offline payments, similar to cash, from its initial issuance, and users should not be able to program it to restrict further usage, as stated in the leaked draft proposal. The document included the following statement:
“The digital euro must be available for both online and offline digital euro payment transactions from the first issuance of the digital euro.”
The level of privacy for offline, face-to-face use should be “comparable” to withdrawing banknotes from an ATM, it states. For offline transactions, “neither the European Central Bank nor the payment service providers shall have access to personal transaction data,” although banks distributing the currency may provide details of account funding to financial crime authorities if they suspect money laundering.
Privacy emerged as the main concern in a 2021 ECB survey, with examples from China raising concerns that a CBDC could lead to widespread government control. The EU is one of several jurisdictions worldwide, including the US and the UK, considering issuing fiat currencies in digital form. After an extended research period, the ECB will make a decision later this year on whether to proceed with the CBDC, although ECB board member Fabio Panetta has stated that the decision to continue must be political and not solely reserved for central bankers.
Any legislation required to support the CBDC must be approved by the European Parliament, where lawmakers have shown some scepticism, and by governments convening in a body called the Council, who do not seem inclined to reject the project entirely. An EU official stated the following:
“The Council will not determine or formulate a joint position on whether a digital euro should be introduced, at least not in the near future. I don’t expect the ECB to go further in the face of a very sceptical group of ministers.”
As a legal tender, the draft proposal states that shops should accept the digital euro and not impose surcharges for its use, unless they are very small businesses or have a valid reason to refuse, such as a power outage. The CBDC “shall not be programmable,” the text added, addressing concerns that the ability to exert control over the use of certain funds could limit the freely usable nature of fiat currency.
The text also includes measures to prevent individuals from using digital euro accounts as alternatives to savings accounts at commercial banks. Balances should not bear interest, and the ECB may impose further control measures. Panetta has already stated that individuals should be limited to holding around €3,000 ($3,250) to ensure it is primarily used for daily payments. The following was stated in the draft:
“The digital euro payment infrastructure should adapt to new technologies, including distributed ledger technology.”
However, the ECB has not yet committed to using blockchain as the basis for the CBDC. It is expected that the draft will be approved by the Commission on June 28, along with a proposal on the legal status of cash, according to a schedule published by the EU’s executive body.
