The European Central Bank’s (ECB) Governing Council has taken a significant step in the digitalization of the Euro, entering into the next phase of the digital Euro project. This decision follows the conclusion of a two-year investigation phase, which sought to determine design and distribution models for a digital Euro. The ensuing preparation phase is expected to pave the way for the potential issuance and deployment of a digital Euro, subject to legislative processes.
The investigation phase, launched in October 2021, aimed to explore various digital Euro design and distribution models. The findings, presented in a report published today, reveal that the ECB envisions the digital Euro as a widely accessible, digital form of cash that can be used for all digital payments within the Euro area. The digital Euro will be accessible both online and offline, offer maximum privacy, and allow instant payments in central bank money. This novel digital asset could be used for peer-to-peer transactions, point-of-sale purchases, e-commerce, and government dealings, presenting an all-encompassing digital payment solution.
The forthcoming preparation phase, commencing on November 1, 2023, will span two years. During this time, the Eurosystem aims to finalize the digital Euro rulebook, select providers capable of building the digital Euro platform and supporting infrastructure, and engage in testing and experimentation. The objective is to create a digital Euro that satisfies the Eurosystem’s criteria and user expectations regarding user experience, privacy, financial inclusion, and environmental sustainability.
This transition to the preparation phase does not constitute a decision to issue a digital Euro. The ECB will make this determination once the European Union’s legislative process is completed. Any alterations to the digital Euro’s design as a result of legislative discussions will be taken into account.
Christine Lagarde, President of the ECB, noted the necessity to prepare the Euro for the future, describing the digital Euro as a form of cash accessible for all digital payments, free of charge, and designed to meet the highest privacy standards. It will coexist alongside physical cash, ensuring inclusivity.
The digital Euro will place a strong emphasis on data protection, ensuring that the Eurosystem cannot access users’ personal data or link payment information to individuals. Additionally, it will offer a high level of privacy for offline transactions.
The digital Euro is expected to promote resilience, competition, and innovation in the European payment sector, providing a pan-European payment solution under European governance. It will rely on its infrastructure, enhancing its robustness. European supervised intermediaries can build pan-European services for their customers on this platform, fostering efficiency, reducing costs, and encouraging innovation.
In terms of distribution, users can access digital Euro services through their payment service provider’s app or online interface. Those without a bank account or digital devices can make payments using a card provided by a public body. Exchanges between digital Euros and physical cash can be conducted at cash machines.
The digital Euro aims to be free for basic individual use. A compensation model will be implemented to incentivize intermediaries to distribute digital Euros while preventing excessive service charges for merchants. The Eurosystem will bear the associated costs, including scheme management and settlement processing.
Transparency and cooperation with stakeholders are essential aspects of the project. The Eurosystem has sought feedback from European decision-makers, market participants, and potential users and will maintain active engagement with a wide range of stakeholders and EU legislators.
The digital Euro is a significant step towards modernizing the European currency, ensuring its relevance in the digital age. While it faces regulatory and operational challenges, its potential to streamline transactions, enhance privacy, and foster innovation makes it a compelling proposition for the Eurozone and beyond.
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