After scrolling through the 11,000-plus comments the European Commission has received about its digital euro project, it isn’t hard to get flashbacks to the reception a different type of digital currency received last year.
El Salvador’s embrace of Bitcoin as an official currency is in some ways the polar opposite of the European Union’s central bank digital currency (CBDC) project — which is, after, all aimed at making its official currency more efficient while staving off the threat that private cryptocurrencies present to the bloc’s financial system.
See also: El Salvador’s Bitcoin-as-Currency Experiment Ends 2021 on a Low Note
Two weeks into the EU’s public feedback period that began on April 5 and runs through June 14, an unscientific review of some of the comments suggests that the EU has a couple of the main problems Salvadoran President Nayib Bukele had — and still has — that brought protestors into the streets after making bitcoin a legal tender: A fair number of people don’t really understand it, and a rather larger group distrusts both the proposal and the government.
The two are more than a little intertwined and were summed up in an April 19, English-language comment by Petr Kuneš of the Czech Republic:
Referring to the dystopian Sci-Fi trilogy of “Matrix” movies that pitted humanity against machine overlords, Kuneš noted, “I fully disagree with further digitalization/Matrixation,” of our lives, arguing that when it comes to currency, “it is essential to keep [the] fundamental human right to be offline, which at financial market means to be able to pay cash.”
Notably, many of the early comments were in German, and scrolling randomly through the hundreds of pages, it’s hard not to notice that the word “nein” — “no” — appears with great frequency.
What’s That You Say?
One thing all this suggests is that the EU hasn’t done a good enough job explaining that the digital euro would not supplant physical cash, but rather complement it.
The European Central Bank (ECB) has been quite clear about this. The digital euro page on its website’s “Payments & Markets” section said that a “digital euro would not replace cash, but rather complement it. The Eurosystem will continue to ensure that all citizens across the euro area have access to cash.”
The proposed CBDC, it added, “would give people an additional choice about how to pay and make it easier to do so, contributing to accessibility and inclusion.”
Of course, there’s another question that came up occasionally.
After calling the euro and ECB “the basis for the repression of ALL EU citizens who are critical of the official narrative,” an anonymous Czech commentator raised a more practical reason to avoid a digital euro: “The ability to send euros digitally already covers Visa/Mastercard/Paypal/cryptocurrencies etc.,” they said. “We don’t need” another digital payments channel.
That’s an argument that’s been made in the U.S. as well, particularly with FedNow potentially solving the real-time payments benefit attributed to CBDCs.
Read more: FedNow’s Progress on Instant Payments May Weaken Case for Digital Dollar
The Big Brother Battle
Another Czech commenter, Eva Vykoukalová, said that “the digital euro must not be introduced.”
“Nobody should know where I invest money, what products I am buying,” they said, summing up the trust issue succinctly. “The introduction of the digital euro is the complete loss of the liberty and the start of the total control.”
The ECB has already taken the public’s temperature on a digital euro and concluded that the need for privacy — both real and believed — is key.
Related: Digital Euro Will Balance Privacy, Anti-Money Laundering Concerns, Finance Ministers Say
“If the central bank gets involved in digital payments, privacy is going to be better protected because we are not like private companies,” Fabio Panetta, the ECB executive board member who is spearheading its cryptocurrency policy initiatives, told the Financial Times recently. “We have no commercial interest in storing, managing or monetizing the data of users.”
That said, Panetta acknowledged that “confidentiality and privacy are different from anonymity.”
See also: ECB Says Digital Euro Would Protect Privacy
That’s been a theme in all major CBDC projects. Even China has taken note of the need for its citizens to trust that their privacy will not be violated, acknowledging that “the demand from the general public is to keep anonymity by using paper money and coins.”
Still, what he said is the digital yuan will offer “controllable anonymity,” balanced with the need for anti-money laundering (AML) and anti-crime measures.
Creating Trust
In the U.S., President Joe Biden’s March 10 executive order on cryptocurrency regulation directed agencies to ensure that all digital asset systems prioritize “privacy, security, [and] combating illicit exploitation,” among other things.
Read more: Biden’s Executive Order Set to Fast-Track Crypto Policy
As far as a CBDC, Biden ordered up a digital dollar recommendation that is “consistent with U.S. priorities and democratic values.”
The technology to solve the privacy problem does exist, according to Neha Narula, director of MIT’s Digital Currency Institute, which is working with the Federal Reserve Bank of Boston and several other nations’ central banks to test technology that a CBDC could be built on.
Narula said her team was able to build systems “where the central bank didn’t necessarily need to see or store [much] user information.”
“What I’m really excited about in the next phase of work is exploring cryptographic designs for privacy,” she said. “We have a lot of techniques in computer science that can help us verify the integrity of information while not necessarily revealing exactly what that information says.”
Read more: Boston Fed, MIT Digital Dollar Test Casts Doubt on Blockchain as Processing Platform
In a recent speech, Panetta told the Committee on Economic and Monetary Affairs of the European Parliament that “a digital euro would provide people with a level of privacy equal to or higher than that of private digital solutions.”
Now, he just has to make people believe it.
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