Central bank digital currencies have had quite a few growing pains. Somehow all the significant problems start with the letter “p” – privacy, programmability, and, above all, politics.
Why is privacy a problem? We talk about privacy because most CBDCs would be issued as a blockchain-based token which allows the issuer, i.e. the central bank, to have all the data on how this token changes hands. Europe is not even formally committing to using tokenization, and privacy concerns are one of the reasons for this.Legally, however, it is extremely unlikely that mass surveillance will ever be permissible by a G7 central bank.
A core principle of the digital euro is that the ECB and the payment service providers shall implement technical and organizational measures, including state-of-the-art security and privacy-preserving safeguards, to ensure the identities of digital euro users cannot be accessed by the ECB via its front-end solution.
The ECB is so aware of these citizens’ concerns that in parallel with the digital euro proposal, the Commission launched a proposal to enshrine the right for cash to circulate EU economies. This is an insurance policy against privacy-themed criticism and populism.