The European Central Bank (ECB) is preparing to introduce blockchain-based transactions using central bank money next year. Their plans include issuing a digital euro, which will have privacy controls that need to be legislated by the EU authorities.

ECB board member Piero Cipollone mentioned in a recent statement that they will permit settlements using distributed ledger technology (DLT) in 2026. The ECB is also preparing to issue the digital euro and establish international cross-border payment systems.

Additionally, the infrastructure for the digital euro will be accessible to other entities for settling transactions with various central bank digital currencies (CBDCs). Cipollone highlighted that limitations on holdings and lack of interest would help maintain banks’ roles in credit activities and monetary transmission. If legislative progress is made by 2026, the first transactions with the digital euro could commence in 2027, with a full launch anticipated in 2029.

In a separate statement, ECB President Christine Lagarde indicated that work on the digital euro’s design, including privacy components, is in the hands of EU lawmakers. Cipollone articulated the ECB’s vision, emphasizing that the digital euro’s utility would extend to both online and offline environments, thereby enhancing resilience and privacy.

Cipollone noted the need for a CBDC given the current fragmented retail payment landscape within the EU and the sluggish pace of cross-border payments. He cautioned that without a CBDC, the proliferation of tokenization and DLT might result in fragmentation and greater credit risk.

Moreover, though stablecoins might alleviate the issues with slow, costly payments, they have the potential to destabilize monetary systems, particularly if dollar-based stablecoins gain prominence, potentially undermining the euro’s international status.

This approach by the ECB contrasts sharply with the EU’s recent privacy challenges, where legislation must grant approval for the CBDC framework. Last month, attempts to impose mandatory scanning of private messages by the European Commission met with resistance.

Notably, an internal document from the EU suggested broad support among member states for extensive data retention, advocating for comprehensive logging of communication activities.

The EU’s AML Handbook, published earlier this year, bars crypto accounts that enable transaction anonymity, showcasing a surge in scrutiny concerning crypto privacy tools.