The European Central Bank (ECB) has issued a stark warning on the involvement of Big Tech firms in cryptocurrency projects, cautioning that such moves could jeopardise privacy, create further risks to competition and even “endanger monetary sovereignty”.
The warning comes as the ECB continues to mull over plans to introduce a digital euro, which it hopes could mitigate some of the risks posed by private firms establishing their own digital currencies.
For its part, Facebook has had to postpone the launch of its ‘Diem’ currency, after a series of concerns were raised by regulators. In Europe, one of the biggest opponents so far has been France’s Finance Minister Bruno Le Maire, who has said that the move could lead to financial risks.
Speaking at an online event hosted by Brussels think tank Bruegel on Wednesday (10 February), Fabio Panetta, member of the ECB’s executive board and chair of the task force on a digital euro, shared these concerns, while further making the case for the ECB to launch their own digital currency.
Big Tech firms, Panetta said, “are seeking to sidestep traditional distribution networks including payment systems through their control of social media.”
“Data-driven models could jeopardise privacy and pose the risk of personal information being misused. Moreover, integration with other services provided by Big Tech companies may threaten competition through tying, bundling, cross-subsidization, and winner takes all dynamics,” he added.
Moreover, Panetta said that the stability of the financial markets could be at risk, due to the rapid take of cryptocurrencies that large tech firms may be able to achieve with their expansive consumer base.
“Big Tech may contribute to a rapid take-up of stable coins, which could create systemic risks and even endanger monetary sovereignty,” he said.
In the same breath, meanwhile, Panetta took the opportunity to pitch the ECB’s own plans for a digital euro, a decision on which is expected to be put forth in April. He noted that such a project would “give access to a safe illiquid asset which, unlike cash, and in the absence of design-related constraints, could potentially be held in large volumes at no cost.”
Privacy dominates Digital Euro debate
The ECB recently closed a public consultation on its future plans for a digital euro, which resulted in ‘privacy’ being the number one concern among stakeholders. And while the ECB is taking due account of the survey’s emphasis on privacy, there are questions that remain.
Panetta was pressed on Wednesday as to the privacy protocols that would have to be put in place should the ECB seek to track cash holdings for digital euros, bearing in mind that the monetary union has previously pitched the idea of imposing a €3,000 threshold.
“It is true that if we want to guarantee the stability of the system and enforce those limits that I mentioned before – the maximum holdings of a digital euro – we cannot guarantee 100% privacy on larger payments.”
Panetta added that should the competent authority wish to check whether an individual holds more than €3,000, it should have the ability to identify if two different smartphones containing digital euro holdings belong to the same person, for example. And if that would be the case, the ECB would “not allow that transaction,” Panetta said.
The ECB is considering additional privacy protocols that could be implemented into the digital euro, including the option of making small transactions ‘totally anonymous’ as well as being conducted offline.
Panetta also revealed that the ECB was mulling over the possibility of issuing ‘anonymity vouchers’ to users of a digital euro.
“You would have a voucher and you can spend it in a way that is not tracked by the system and would allow you to keep full control of your confidential and personal data,” Panetta said.
More generally, the chair of the digital euro taskforce conceded that there is likely to be a tradeoff between the efficient operation of the digital euro and privacy standards in the future.
“There is a tension between controlling and guaranteeing the functioning of the system and the protection of privacy. At a certain point, that trade-off should be analysed not only by the Central Bank, but by the public at large.”
Commission working with ECB on digital euro
In January, news surfaced that the Commission is to work alongside the ECB in probing a range of ‘policy, legal and technical’ pitfalls that could emerge as part of plans to introduce a digital euro.
“Such a project would answer key design and technical questions and provide the ECB with the necessary tools to stand ready to issue a digital euro if such a decision is taken,” a joint statement from the ECB and the Commission read.