Offline Digital Euro Could Attract Criminals, BIS Warns
A Bank for International Settlements report warns that offline digital euro functionality could attract criminal use, complicating the European Parliament's decision last month to back the digital euro with both online and offline capabilities.
Key Takeaway
EU's offline digital euro feature creates privacy benefits but opens money laundering loopholes that worry regulators.
Bank for International Settlements researchers Andrea Minto, Anneke Kosse, Takeshi Shirakami, and Peter Wierts published a report this week warning that offline digital euro functionality could attract criminal use.
The BIS authors said offline digital euro payments could pose greater anti-money laundering and terrorism financing risks compared with online digital euro payments or commercial bank deposits. Illicit actors might prefer offline digital euros for illegal transfers because cash is cumbersome and less portable, they wrote.
The timing complicates the European Parliament's decision last month to back the digital euro with both online and offline functionality. EU lawmakers argued the digital currency is necessary to compete with private and non-EU actors racing to digitize payments. They expressed particular concern about the growth of stablecoins pegged to the US dollar.
The BIS report emphasized that retail CBDCs need to be incorporated into anti-money laundering frameworks when issued for general use. The probability of detecting illicit use will likely differ between online and offline CBDC payments, the researchers wrote.
Meanwhile, American lawmakers introduced bipartisan legislation this week proposing a Federal Reserve CBDC ban until 2030. President Donald Trump campaigned against CBDCs and signed an executive order prohibiting establishment of a US CBDC. The contrasting approaches highlight the global divide on central bank digital currencies as Europe pushes forward while the US pumps the brakes.
The European Central Bank will issue the digital euro if EU legislation passes, with an EU cash payment limit of ₱584,679 ($10,000) set to take effect in 2027.
This article was written based on reporting from Dlnews.
