EU Greenlights Privacy-Focused Offline Digital Euro Alongside Online Version

The Council of the European Union has formally endorsed the European Central Bank’s plan to introduce a digital euro with both online and offline functionality, marking a significant step toward the bloc’s first central bank digital currency (CBDC).

In a policy document released on Friday, EU ministers expressed alignment with the ECB’s proposed design, supporting the simultaneous rollout of an online digital euro for everyday payments and an offline version aimed at enhancing user privacy. The council’s position reinforces the ECB’s long-standing view that a digital euro should complement (not replace) physical cash.

ECB President Christine Lagarde emphasized that while the central bank has completed the technical groundwork, the next phase now rests with Europe’s lawmakers. She noted that it will be up to the European Council and, subsequently, the European Parliament to determine whether the European Commission’s proposal should move forward as drafted or be amended into binding legislation.

How the Offline Digital Euro Would Work

The offline version of the digital euro is designed to replicate some of the privacy characteristics of cash. According to the documents, transaction data would remain confined to the devices involved in the payment, preventing intermediaries or third parties from tracking user activity across transactions.

Payments would rely on authorized devices, such as smartphones or smart cards, capable of exchanging ECB-issued digital euro tokens through direct, in-person interaction. These transactions would function without an internet connection, allowing payments to be completed even during network outages or in areas with limited connectivity.

However, EU policymakers acknowledge that fully enforcing physical proximity in a digital environment presents challenges. While the system is intended to rely on near-field communication (NFC), experts warn that advanced techniques, such as relay attacks that extend signals over the internet, could undermine strict proximity controls.

The European Data Protection Board has recognized these limitations, noting that effective countermeasures are limited. In its assessment, the board concluded that physical proximity, a defining feature of cash transactions, cannot be guaranteed with absolute reliability in a digital currency system.

Privacy by Design, but Not Full Anonymity

While the offline digital euro would offer stronger privacy protections than traditional electronic payments, officials have been careful to avoid equating it with complete anonymity. Transaction data and cryptographic keys would be stored within secure elements of certified devices, including mobile phones and dedicated payment cards.

This approach aims to strike a balance between user privacy, fraud prevention, and regulatory compliance, particularly around anti-money laundering and counter-terrorism financing requirements.