The European Central Bank has outlined the privacy protections planned for the digital euro, covering online and offline payments.
The digital euro is being designed to offer a high level of privacy while complementing cash rather than replacing it, according to ECB Executive Board member Piero Cipollone, who addressed the topic in an interview.
Cipollone said the digital euro would support both online and offline payment methods, each following a different privacy model. Offline transactions would take place directly between the payer and payee, with transaction details visible only to those two parties, resembling the way cash payments currently work. In addition, for online payments, the Eurosystem (comprising the European Central Bank and the national central banks of the euro area) would not be able to identify individuals sending or receiving digital euro payments.
According to Cipollone, only the banks or payment service providers involved in a given transaction would be able to identify customers, including in cases where this is required for AML checks. He said this structure is intended to give the digital euro a higher degree of privacy protection than conventional bank transfers, while offering the highest level of privacy currently achievable with available technology.
The interview also addressed wider economic themes, including European competitiveness, inflation risks, energy dependence, and productivity, as well as the potential economic impact of the Strait of Hormuz crisis. Cipollone said the risk of stagflation currently appears remote, while stressing the importance of reducing Europe's dependence on imported fossil fuels and improving productivity.
Implications for digital payments and CBDC design
The privacy framework described by Cipollone reflects one of the central design challenges facing central bank digital currencies: reconciling individual privacy with regulatory requirements such as AML oversight. Moreover, through the process of separating the roles of the Eurosystem and commercial banks in transaction visibility, the digital euro project aims to limit the amount of personal payment data accessible to the central bank itself.
The digital euro remains in development, with the ECB positioning it as a complement to cash and existing private payment systems rather than a substitute for either. Its eventual design could serve as a reference point for other jurisdictions assessing how a public digital currency might coexist with cash and privately operated payment infrastructure, particularly as more central banks explore retail CBDC projects.
