MIT and Deutsche Bundesbank to collaborate on a groundbreaking project investigating privacy aspects of CBDCs

The Deutsche Bundesbank has joined forces with the Massachusetts Institute of Technology (MIT) Digital Currency Initiative (DCI) to delve into the realm of central bank digital currency (CBDC). Joachim Nagel, the President of the German central bank, spoke at the project’s launch about the challenges that lie ahead for the digital euro.
During his address to MIT students, Nagel explained that the collaborative research will primarily focus on developing security and privacy measures for CBDCs. One of the main issues is that private digital payment solutions often rely on third-party services that have access to consumers’ payment data, which they can exploit for commercial purposes. In contrast, Nagel stated that the current payment system is flawed, citing the example of German bank cards failing to work in other euro area countries, despite being operated by an international company.
As digitalization continues to surge, the Eurosystem is contemplating the creation of a digital product that complements physical cash. Nagel specifically referred to the digital euro, although alternative options have emerged, including the United States Federal Reserve’s FedNow service, which was introduced in July. FedNow has faced severe criticism, but CBDCs have fared even worse, with concerns surrounding privacy and potential impact on the banking industry being prominent among opponents. In response, European Central Bank (ECB) officials have adopted an offensive stance against the criticism. ECB President Christine Lagarde stated in September that the digital euro has become the subject of conspiracy theories, and officials have criticized the banking community for disregarding CBDCs without proper consideration.
Nagel acknowledged to MIT students that the digital euro, as a “riskless asset,” could potentially undermine banks and lead to economic instability during times of stress. To counteract this threat, limits will be imposed on the digital euro. Additionally, Nagel highlighted that the general public has only a vague understanding of the digital euro project, which is currently in its preparatory stage.
The DCI has also formed partnerships with the U.S. Federal Reserve Bank of Boston in their Project Hamilton, which explores the possibility of a digital dollar, as well as with the central banks of Canada and the United Kingdom.
Magazine: How the digital yuan could revolutionize the world… for better or worse.