1.1.        From Cash to Code: Reframing Monetary Privacy in the Digital Age

 

At the heart of the digital euro debate lies a conflict between privacy and

anti-money-laundering (AML) obligations, a balance that touches the core of Europe’s fundamental rights framework. The European Central Bank (ECB) justifies the digital euro as a response to the decline of cash and the rise of private digital payment systems, positioning it as Europe’s answer to the global surge in central bank digital currencies (CBDCs). Yet, this transition from tangible to digital money inevitably creates an extensive data trail, demanding careful regulatory oversight under EU privacy law. The 2023 Digital Euro proposal, while promising cash-like anonymity, fails to deliver it in practice, especially for offline transactions, opening the door to extensive tracking. An amendment can utilise the proportionality principle to balance the public demand for privacy with mandatory AML/CFT obligations.¹ The regulatory consensus, supported by the Risk-Based Approach (RBA), dictates that surveillance must align with risk.² The EDPB and EDPS argue that full traceability for low-value transactions is an excessive invasion of privacy where AML risk is minimal.³ Adopting a privacy threshold for minor transactions, through the robust Privacy-by-Design concept and using PETs such as ZKP, guarantee compliance without widespread monitoring, secure public trust, and ensure the ECB gets the design right from the outset.⁴

An amendment grounded in the proportionality principle could better reconcile the public demand for privacy with the state’s duty to enforce AML and counter-terrorist financing (CFT) measures.⁵ Data protection and privacy are the principles at stake, as an element of public interest in the implementation of the digital euro.⁶ This requirement contradicts the purpose of AML/CFT compliance, which is to prevent illegal money through transaction monitoring.⁷ According to the RBA, supported by the regulatory consensus, surveillance must correspond with risk.⁸ The EDPB and EDPS have consistently maintained that imposing complete traceability for low-value offline transactions fails to meet the necessity and proportionality test under EU law, but is an excessive invasion of privacy in situations where the risk of AML is naturally minimal.⁹ In order to address this, the Privacy-by-Design concept is crucial, requiring the use of PETs, including ZKP, to systematically guarantee compliance without widespread monitoring.¹⁰

The EC’s 2023 proposal for a DigEur Regulation defines the existing legal framework.¹¹ The system is structured as a two-tier approach, with Payment Service Providers (PSPs) in charge of consumer-facing services and Customer Due Diligence (CDD), including AML compliance, and the ECB in charge of the underlying infrastructure and settlement.¹² Importantly, the plan of the ECB to have access to pseudonymized data, preventing identification of users.¹³ Thus, the degree of privacy for electronic payments is raised to a higher level.¹⁴ While offline payments are intended to offer ‘cash-like privacy’ because of localised storage, online payments are subject to the same AML/CFT regulations as other private digital payment methods, a higher traceability level than cash.¹⁵

 

1.2.        Controllable Anonymity: A Legal Oxymoron?

 

The boundaries of this pseudonymization and its democratic accountability remain controversial.¹⁶ The ECB is obliged by Regulation 2018/1725, which places the EDPS in charge of oversight.¹⁷ The online approach does not fundamentally provide a selected privacy threshold, the EDPB and EDPS contend that it breaches the necessity and proportionality elements of EU legislation, complicating the regulatory supervision. In contrast, worldwide regimes demonstrate that retail CBDC integration requires new legal frameworks. To align the RBA with public trust, global CBDC designs often require a tiered approach to AML, providing enhanced anonymity for low-value transactions. The amendment follows the global trend of central banks using Privacy-by-Design to better the privacy-AML trade-off in a structural way.

 

1.3.        When Oversight Undermines Trust: The Contradiction Within Article 37

 

The foundation of the Digital Euro’s legislative framework, especially the privacy and AML framework outlined in Article 37, is a fundamental contradiction, simultaneously mandating control and traceability mechanisms that undermine the goal of true cash-like anonymity.¹⁸ The exact public trust that this design aims to build is effectively undermined since it relies on ‘controllable anonymity’, where privacy is revocable.¹⁹

 

1.4.        Identifiers, Traceability, and the Quiet Erosion of Privacy

 

In terms of privacy, Article 37 tries to strike a balance by declaring that central banks and PSPs do not keep the peer-to-peer transaction data itself, but the transactional inputs and outputs are nevertheless carefully tracked.²⁰ The requirement to retain the ‘identifier of the local storage device for offline payment is the main threat to cash-like privacy.²¹ By creating a permanent, direct link between the user’s KYC identification and the device used for all offline transactions, this approach effectively eliminates the transactional anonymity protected by Article 37(2). Persistent device IDs enable usage tracking. Furthermore, implementing restrictions necessitates a centralised monitoring system, a serious legal weakness that, according to the EDPB, ‘would affect data subjects’ rights and freedom by requiring additional data collections and controls.²²

The dependence on fundamental quantitative restrictions undermines the model’s fundamental tenet that peer-to-peer transactions are an untraceable ‘black box’.²³ Due to the PSP’s lack of access into transaction specifics, the architecture provides a possible blind hole that may be readily exploited by experienced financial criminals who use ‘smurfing’, which involves designing a certain number of transactions to avoid monitoring criteria.²⁴ This flaw contradicts the maximalist data retention requirements that are enforced elsewhere.²⁵

 

1.5.        The Systemic Fragility of the Digital Euro’s Design

 

The framework additionally violates the GDPR’s storage limitation principle.²⁶ Article 37(3)-(4)(d) requires saving funding and defunding data for five years, including account numbers, as an excessive measure for AML compliance.²⁷ This prolonged logging creates an unnecessary and disproportionate link between account identifiers and personal identity for routine, low-value payments.²⁸A tiered data-retention system, which is limiting full data storage to high-risk cases would achieve proportionality while maintaining regulatory effectiveness.²⁹

Numerous individual devices’ resilience is essential to the offline system’s overall integrity, therefore in order to maintain public confidence, the design must provide the maximum level of resistance to operational cyberattacks and physical manipulation.³⁰Without systemic safeguards, even a single compromised or lost device could cause irrecoverable payments, fraud, or “double spending,” with severe reputational consequences for the entire digital-euro ecosystem.³¹ Ultimately, the compromise provided by Article 37 is an unsatisfactory middle ground that is legally considered inadequately public. For authorities the dependence on ‘controllable anonymity’ is functionally inadequately secure.³²

 

1.6.        Re-Engineering Trust: Embedding Privacy Into the Digital Euro’s Core

 

The digital euro has the potential to reshape Europe’s monetary landscape, but its credibility depends on embedding privacy not as an exception, but as a design principle. The proportionality doctrine offers the legal and ethical compass for this task. Without genuine privacy thresholds and risk-aligned oversight, the digital euro risks becoming a tool of conditional freedom rather than financial inclusion. Europe’s leadership in digital innovation will rest not on perfect traceability, but on its capacity to translate its fundamental rights into code.

¹IMF, Central Bank Digital Currency Data Use and Privacy Protection (IMF Fintech Note, 2024) file:///Users/maleevska/Downloads/FTNEA2024004.pdf, accessed, 15 October 2025.

²European Commission, ‘Explanatory Memorandum to the Proposal for a Regulation of the European Parliament and of the Council on the Establishment of the Digital Euro’ COM(2023) 369 final (28 June 2023) (‘Explanatory Memorandum to the Digital Euro’), 1-3.

³European Data Protection Board and European Data Protection Supervisor, Joint Opinion 02/2023 on the Proposal for a Regulation of the European Parliament and of the Council on the Establishment of the Digital Euro (Adopted 22 February 2023).

⁴Chomczyk Penedo A, Trigo Kramcsák P, Van den Poel M and Ortalda A, Untangling Digital Euro’s Personal Data Protection Challenges: An Exploration of Data Processing Activities and Latent Privacy Risks (16 October 2024), 10.

⁵European Central Bank, A Stocktake on the Digital Euro: Summary Report on the Investigation Phase and Outlook on the Next Phase (18 October 2023) 1-12.

⁶Bureau Européen des Unions de Consommateurs (BEUC), Digital Euro: BEUC’s Recommendations on the Legislative Framework for the Digital Euro BEUC-X-2023-122 (29 September 2023).

⁷Chomczyk Penedo A, Trigo Kramcsák P, Van den Poel M and Ortalda A, Untangling Digital Euro’s Personal Data Protection Challenges: An Exploration of Data Processing Activities and Latent Privacy Risks (16 October 2024).

⁸Filippo Annunziata, Christos Hadjiemmanuil and Bart Joosen (eds), Central Bank Digital Currency: The Birth of the Digital Euro (Springer Nature Switzerland AG 2025) https://doi.org/10.1007/978-3-031-80957-6 accessed 15 October 2025.

⁹European Data Protection Board and European Data Protection Supervisor, Joint Opinion 02/2023 on the Proposal for a Regulation of the European Parliament and of the Council on the Establishment of the Digital Euro (Adopted 22 February 2023).

¹⁰European Commission, Commission Staff Working Document: Impact Assessment Report Accompanying the Proposal for a Regulation of the European Parliament and of the Council on the Establishment of the Digital Euro SWD(2023) 233 final (Brussels, 28 June 2023).

¹¹Thomadakis A, Lannoo K and Shamsfakhr F, A Digital Euro Beyond Impulse – Think Twice, Act Once

(CEPS–ECMI–ECRI Study, Centre for European Policy Studies 2023).

¹²F Annunziata, C Hadjiemmanuil and B Joosen (eds), Central Bank Digital Currency: The Birth of the Digital Euro (Springer Nature Switzerland AG 2025) https://doi.org/10.1007/978-3-031-80957-6 accessed 15 October 2025.

¹³European Central Bank, A Stocktake on the Digital Euro: Summary Report on the Investigation Phase and Outlook on the Next Phase (18 October 2023).

¹⁴Pablo Sanz Bayón, ‘Current and Future Central Bank Digital Currency (CBDC) Projects’ in Carmen Pastor Sempere (ed), Governance and Control of Data and Digital Economy in the European Single Market: Legal Framework for New Digital Assets, Identities and Data Spaces (Springer Nature 2025) https://doi.org/10.1007/978-3-031-74889-9_14 accessed 15 October 2025.

¹⁵ Digital Euro as a platform and its private law implications*.pdf

¹⁶Chomczyk Penedo A, Trigo Kramcsák P, Van den Poel M and Ortalda A, Untangling Digital Euro’s Personal Data Protection Challenges: An Exploration of Data Processing Activities and Latent Privacy Risks (16 October 2024).

¹⁷F Annunziata, C Hadjiemmanuil and B Joosen (eds), Central Bank Digital Currency: The Birth of the Digital Euro (Springer Nature Switzerland AG 2025) https://doi.org/10.1007/978-3-031-80957-6 accessed 15 October 2025.

¹⁸Bureau Européen des Unions de Consommateurs (BEUC), Digital Euro: BEUC’s Recommendations on the Legislative Framework for the Digital Euro BEUC-X-2023-122 (29 September 2023).

¹⁹Pablo Sanz Bayón, ‘Current and Future Central Bank Digital Currency (CBDC) Projects’ in Carmen Pastor Sempere (ed), Governance and Control of Data and Digital Economy in the European Single Market: Legal Framework for New Digital Assets, Identities and Data Spaces (Springer Nature 2025) https://doi.org/10.1007/978-3-031-74889-9_14 accessed 15 October 2025.

²⁰Filippo Annunziata, Christos Hadjiemmanuil and Bart Joosen (eds), Central Bank Digital Currency: The Birth of the Digital Euro (Springer Nature Switzerland AG 2025) https://doi.org/10.1007/978-3-031-80957-6 accessed 15 October 2025.

²¹Carola Westermeier, ‘The Digital Euro: A Materialization of (In)Security’ (2024) 31 Review of International Political Economy 1569 https://doi.org/10.1080/09692290.2024.2345613 accessed 15 October 2025, 15.

²² Bureau Européen des Unions de Consommateurs (BEUC), Digital Euro: BEUC’s Recommendations on the Legislative Framework for the Digital Euro BEUC-X-2023-122 (29 September 2023).

²³Chomczyk Penedo A, Trigo Kramcsák P, Van den Poel M and Ortalda A, Untangling Digital Euro’s Personal Data Protection Challenges: An Exploration of Data Processing Activities and Latent Privacy Risks (16 October 2024).

²⁴Bureau Européen des Unions de Consommateurs (BEUC), Digital Euro: BEUC’s Recommendations on the Legislative Framework for the Digital Euro BEUC-X-2023-122 (29 September 2023).

²⁵C Westermeier, ‘The Digital Euro: A Materialization of (In)Security’ (2024) 31 Review of International Political Economy 1569 https://doi.org/10.1080/09692290.2024.2345613 accessed 15 October 2025.

²⁶J Nicholls, ‘Impact on the Commercial Banking Sector’ in Central Bank Digital Currencies (Cambridge University Press 2023) https://doi.org/10.1017/9781788216333.005 accessed 15 October 2025.

²⁷F Annunziata, C Hadjiemmanuil and B Joosen (eds), Central Bank Digital Currency: The Birth of the Digital Euro (Springer Nature Switzerland AG 2025) https://doi.org/10.1007/978-3-031-80957-6 accessed 15 October 2025.

²⁸European Commission, ‘Explanatory Memorandum to the Proposal for a Regulation of the European Parliament and of the Council on the Establishment of the Digital Euro’ COM(2023) 369 final (28 June 2023) (‘Explanatory Memorandum to the Digital Euro’), 1-3.

²⁹European Commission, Commission Staff Working Document: Impact Assessment Report Accompanying the Proposal for a Regulation on the Establishment of the Digital Euro SWD(2023) 233 final (28 June 2023) https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:52023SC0233 accessed 15 October 2025.

³⁰F Annunziata, C Hadjiemmanuil and B Joosen (eds), Central Bank Digital Currency: The Birth of the Digital Euro (Springer Nature Switzerland AG 2025) https://doi.org/10.1007/978-3-031-80957-6 accessed 15 October 2025.

³¹European Commission, Commission Staff Working Document: Impact Assessment Report Accompanying the Proposal for a Regulation on the Establishment of the Digital Euro SWD(2023) 233 final (28 June 2023) https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:52023SC0233 accessed 15 October 2025.

³²Thomadakis A, Lannoo K and Shamsfakhr F, A Digital Euro Beyond Impulse – Think Twice, Act Once

(CEPS-ECMI-ECRI Study, Centre for European Policy Studies 2023)

https://www.ceps.eu/ceps-news/a-digital-euro-beyond-impulse-think-twice-act-once/ accessed 15 October 2025,

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