Next phase of digital euro project gets green light

The Governing Council of the European Central Bank (ECB) decided today to move to the next phase of the digital euro project: the preparation phase.

Next phase of digital euro project gets green light

This decision follows the completion of the investigation phase launched by the Eurosystem in October 2021 to explore possible design and distribution models for a digital euro.

Based on the findings from this phase, detailed in a report, the ECB has designed a digital euro that would be widely accessible to citizens and businesses through distribution by supervised intermediaries, such as banks.

The design envisages the digital euro as a digital form of cash that could be used for all digital payments throughout the euro area:

• It would be widely accessible, free for basic use and available both online and offline.
• It would offer the highest level of privacy and allow users to settle payments instantly in central bank money.
• It could be used from person to person, at the point of sale, in e-commerce and in government transactions.

The report notes that no digital payment instrument offers all these features. The CBDC would fill that gap.

The next phase of the project – the preparation phase – will start on 1 November 2023 and will initially last two years.

It will involve finalising the digital euro rulebook and selecting providers that could develop a CBDC platform and infrastructure.

It will also include testing and experimentation to develop a product that meets both the Eurosystem’s requirements and user needs, for example in terms of user experience, privacy, financial inclusion and environmental footprint.

The ECB will continue to engage with the public and all stakeholders during this phase.

After two years, the Governing Council will decide whether to move to the next stage of preparations, to pave the way for the possible future issuance and roll-out of a CBDC.

“We need to prepare our currency for the future,” says Christine Lagarde, President of the ECB.

“We envisage a digital euro as a digital form of cash that can be used for all digital payments, free of charge, and that meets the highest privacy standards. It would coexist alongside physical cash, which will always be available, leaving no one behind.”

Digital euro distribution

Users could access services via their payment service provider’s proprietary app and online interface, or via an app provided by the Eurosystem.

People without access to a bank account or digital devices would also be able to pay with CBDC, for example by using a card provided by a public body such as a post office.

Users would also be able to exchange digital euro for cash or vice versa at cash machines.

The Eurosystem envisions a digital euro that would be free for basic use for individuals.

A compensation model between intermediaries and merchants would ensure that there are incentives for intermediaries to distribute digital euro, as is the case for other electronic payment instruments, and that there are adequate safeguards against excessive service charges for merchants.

The Eurosystem would bear its own costs, including those related to scheme management and settlement processing.

Notes

• Proposal for a Regulation of the European Parliament and of the Council on the establishment of the digital euro, European Commission, COM(2023) 369 final, 28 June 2023; and Proposal for a Regulation of the European Parliament and of the Council on the provision of digital euro services by payment services providers incorporated in Member States whose currency is not the euro and amending Regulation (EU) 2021/1230 of the European Parliament and the Council, COM(2023) 368 final, 28 June 2023.
• The Eurosystem has established a digital euro scheme Rulebook Development Group to support the drafting of a single set of rules, standards, and procedures for the digital euro. The Group is composed of Eurosystem staff and market representatives who provide input from the financial industry, consumers and merchants.