Digital euro: Data protection experts identify data protection risks
If data protection is not given sufficient consideration when introducing a digital euro, there is a risk of data retention, warn data protection experts.
(Image: European Communities, 2001/EC - Audiovisual Service)
The central bank money proposed by the EU Commission poses particular challenges for data protectionists. Digital payment goes hand in hand with the possible loss of anonymity, explains Ulrich Kelber, Federal Commissioner for Data Protection. "If we want to make the digital euro a success, citizens must be able to trust that not all of their transactions will be monitored and even subject to data retention."
The International Working Group on Data Protection in Technology (IWGDPT), also known as the "Berlin Group", has now adopted and published a working paper on digital central bank money (PDF) under Kelber's chairmanship. The paper describes important data protection-related risk factors. For example, people's fundamental rights could be disproportionately infringed and individuals or groups could be discriminated against and marginalized. The paper provides policy makers, central banks and other financial actors with practical recommendations on how to manage these risks.
Data protection right from the start
The paper states that data protection should already be taken into account during the planning phase for the digital euro. A data protection impact assessment should include the effects on fundamental rights in advance, but they should also be kept in mind during the introduction of a digital central bank currency.
Digital payments are theoretically secure and confidential, and the accountability of the payer can also be guaranteed, according to the data protection experts. However, anonymous payments would be incompatible with existing legal provisions to combat risks, for example to combat money laundering or terrorist financing and prevent tax evasion. Against this backdrop, technologies could be used to ensure accountability while disclosing as little personal data as possible. With the appropriate technology, it is possible to focus on transactions that involve these risks.
The paper states that peer-to-peer and offline transactions for certain applications and amounts would improve data protection, for example. This would avoid intermediaries, i.e. intermediaries between players, as far as possible. In addition, the need for digital money should be carefully weighed against potential negative financial impacts for individuals, as should the reasons for using distributed ledger technologies such as blockchain. The risks could be further mitigated by a cybersecurity framework such as interoperability requirements.
The cryptocurrency Monero, for example, shows that digital currencies can function completely anonymously. Unlike most other cryptocurrencies, the sender and receiver are not visible in the block explorers because they are unknown. However, the Berlin Group does not address Monero in its study.
Digital currency not for the sake of it
Overall, the Berlin Group believes that a digital currency should not be introduced simply to keep pace technologically with other currencies. If there is no clear and proven need for the digital currency, the risks to privacy and data protection would outweigh the benefits.
The EU Commission believes that as payments are increasingly being made online, the balance between central bank money and private digital means of payment is at risk. Many citizens would like a European digital currency to be just as anonymous as cash, especially because of the privacy of their payments. The Commission therefore wants to design digital euro transactions in such a way that neither the European Central Bank (ECB) nor the national central banks "can attribute data to an identified or identifiable digital euro user". The EU's anti-money laundering regulations should also be complied with.
The paper also argues in favor of a digital currency that the role of central banks and monetary policy would be strengthened. In addition, financial supervision and stability could be improved and their own currency promoted. Therefore, many central banks have already researched at least one digital currency, some are already undertaking pilot programs or are in the process of introducing a digital currency.
(anw)
