EU Council Approves Digital Euro with Offline Capability — Are Privacy Concerns Addressed?

The European Union has reached an agreement regarding its negotiating position for legislation that will empower the European Central Bank (ECB) to issue a digital version of the euro. This new digital currency will include an offline capability designed to function without an internet connection.

Key Takeaways

The EU has clarified its position for legislation enabling the issue of a digital euro, inclusive of offline payment options.
The digital euro aims to maintain the relevance of central bank money in a digital economy while preserving cash-like features.
The offline mode will allow direct transactions between users, ensuring privacy comparable to cash for low-value payments.
Concerns about privacy and technical limitations have been raised, particularly regarding the offline mode's ability to guarantee anonymity.
The online version of the digital euro will support transactions in e-commerce and remote payments while ensuring pseudonymized data sharing.

EU Council Approves Digital Euro with Offline Capability — Are Privacy Concerns Addressed?

While this decision does not authorize the issuance of the digital euro, it paves the way for negotiations with the European Parliament and brings into focus discussions on privacy, resilience, and political oversight that have been ongoing for some time.

Understanding the Digital Euro: Offline and Private

A document released by the council recently confirms that the digital euro will be launched with both online and offline payment functionalities. EU officials state that this dual approach aims to keep central bank money relevant as the economy becomes increasingly digital, while still preserving characteristics traditionally associated with cash.

The European Central Bank has largely concluded its preparatory work after a two-year period, finishing in October 2025. According to ECB President Christine Lagarde, the next steps are now in the hands of lawmakers who will determine whether the European Commission’s proposal will be accepted as is or modified.

A significant portion of the discussion has centered around the offline payment option, raising important questions about privacy. Under the ECB's proposed system, offline transactions would enable two users to exchange digital euro tokens directly between certified devices—such as smartphones or smart cards—with transaction details kept private between the payer and payee.

Challenges in Achieving Privacy: Limitations of the Digital Euro

Experts and regulators recognize that there are significant technical challenges in ensuring privacy. The European Data Protection Board has cautioned that the enforcement of physical proximity—an intrinsic feature of cash—can be difficult in a digital environment. Relay attacks could potentially bridge the communication gap, making it challenging to maintain secure, localized transactions.

As a result, while the offline digital euro is designed to ensure a high degree of privacy, it cannot fully replicate the anonymity that physical cash provides.

The online version of the digital euro is tailored to assist with everyday digital payments, including those for e-commerce and remote transfers. In these cases, the ECB will only access pseudonymized data, which ensures that payment information cannot be directly linked to specific individuals. Banks and payment service providers will only have access to data necessary for compliance with EU anti-money laundering and counter-terrorism financing regulations, and they'll be prohibited from using payment information for commercial purposes without user consent.

Dual Function of the Digital Euro: Resilience and Integration

ECB officials have made it clear that the central bank is not aiming to monetize transaction data. Each version of the digital euro serves distinct functions. The offline mode is designed to enhance resilience, allowing transactions to be completed during network outages or power failures, and it aims to support financial inclusion for individuals lacking reliable internet access.

Conversely, the online version is intended to integrate with the existing digital payment infrastructure, providing convenience, enhanced security, and compatibility with private payment services operating in the eurozone.

Additionally, the Council's position introduces limits on the number of digital euros that individuals can hold, aimed at preventing significant deposit shifts away from commercial banks. Basic service fees for consumers will be banned, although additional services may incur charges. The framework will also oblige device manufacturers to provide payment service providers with fair access to the necessary hardware and software for supporting digital euro wallets.