The European Central Bank (ECB) announced today it is progressing with the digital euro project, transitioning into a preparation phase that could lead to a “potential future decision” to officially introduce a central bank digital currency (CBDC).
This move comes despite the bank facing widespread criticism, with concerns primarily focusing on privacy implications.
Beginning next month, the bank will embark on another two-year preparation period, aiming to establish a comprehensive digital euro guideline, choose service providers for the CBDC platform, and undergo additional trials.
Digital euro’s preparation phase
The ECB’s Governing Council revealed their decision to advance to the next stage for the digital euro, based on findings from the initial two-year investigation phase.
A report released on the same day emphasised a version of a digital euro that would ensure wide accessibility for both citizens and businesses, distributed through regulated intermediaries like banks.
However, the ECB stressed that this progression does not imply a confirmed launch of a digital euro but serves as a foundational step. An official decision on the issuance will wait until after the European Union’s legislative process is finalised.
What would a digital euro look like?
The newly released report suggests that a digital euro would be the next monetary step in Europe’s digital transformation. This digital version would have the essential features of cash, ensuring it remains a public currency for digital transactions.
The ECB claimed it would be accessible to all, free for basic transactions, and available online and offline, with instant payment processing.
In the latest report, the ECB addressed privacy concerns claiming that it “intended to achieve a cash-like level of privacy for offline payments”.
“It would offer the highest level of privacy and allow users to settle payments instantly in central bank money,” the report said.
The ECB added: “It could be used from person to person, at the point of sale, in e-commerce and in government transactions. No digital payment instrument offers all these features. The digital euro would fill that gap.”
Next stage of the digital euro
Europe’s central bank has reiterated that the transition to a preparation phase doesn’t guarantee the introduction of a digital euro. The official stance will only be formulated once the EU’s legislative process is finished.
Scheduled to commence on 1 November 2023, this next step will span two years, focusing on finalising the framework and engaging providers capable of constructing a robust digital euro platform and infrastructure.
This stage will also involve rigorous testing and experiments to ensure the digital euro fulfills the Europe’s system standards and addresses user demands. Factors such as user experience, privacy, financial inclusivity, and environmental impact will be at the forefront of this.
Throughout this phase, the ECB has said it is committed to maintaining open lines of communication with the public and all relevant stakeholders.
Following these two years, the Governing Council will then determine whether to advance to the next preparation stage, setting the stage for the potential future issuance and deployment of a digital euro.