German Central Bank Reassures Eurosystem’s CBDC Won’t Identify Individuals

The commitment of the Eurosystem to protecting anonymity in central bank digital currency (CBDC) transactions was reaffirmed by Joachim Nagel, head of the Deutsche Bundesbank. It was stressed by Nagel, during his speech at the DZ Bank Capital Markets Conference 2024, that the Eurosystem would only have access to “a minimal set of data necessary to fulfill Eurosystem tasks, such as settlement,” guaranteeing that payments made through CBDCs would remain anonymous.

Addressing privacy concerns, Nagel underscored that financial institutions handling digital euro payments would be prohibited from utilizing personal and transaction-related data for commercial purposes. However, he clarified that this restriction could be waived if users explicitly consented. Moreover, banks would have limited access to this data, primarily to comply with anti-money laundering and counter-terrorism financing regulations, particularly for offline payments involving low-value transactions.

Bank Concerns and Risk Mitigation

Nagel acknowledged banks’ apprehensions regarding the digital euro potentially undermining their deposits. He highlighted concerns about potential structural disintermediation and reduced credit provision capacity. To mitigate these risks, the Eurosystem plans to implement safeguards, including setting low maximum limits for CBDC holdings. This measure aims to ensure that banks can accommodate any surge in liquidity demand prompted by CBDC adoption.

Nagel voiced confidence about the advantages of digitalization for the economy, despite doubts about the necessity of a digital euro. He highlighted the benefits of a single payment method for customers and merchants, saying that a digital euro could successfully meet a range of demands.

As the Eurosystem works through the challenges of implementing the CBDC, protecting privacy and resolving concerns from the banking industry will always be top priorities.