The European Central Bank (ECB) is embarking on a further move to engage the private sector as part of its explorations into a potential digital euro.
The Frankfurt-headquartered authority has published a call for interest on the topic of ‘technical talks on programmable digital euro payments’ as it looks to explore options for the provision of programmable payment services in a potential central bank digital currency (CBDC) for the 19-member eurozone.
Programmable payments – payments that are automatically executed after certain conditions are met – are emerging as an area of increased focus for CBDC designers, as well as a growing number of public servants working in central government departments, albeit the concept is not new.
The ECB’s notice states that its talks will focus on three areas: use cases that experts see as being ‘key’ for programmable payment services in the area of retail payments; which standards, if any, they would deem ‘essential’ to foster innovation in programmable payment services; and which core capabilities a back-end IT architecture for the settlement of payments should offer to facilitate programmable payment services.
The ECB gives aspirant participants until 18 November to apply, ahead of the talks themselves which are expected to take place in December. Sessions will involve members of the ECB’s digital euro project team, while national central banks of the euro area are invited to attend as observers.
ECB’s external experts
The ECB recently passed the mid-point of a two-year ‘investigation phase’ into the possibility of a digital euro – a period during which it has already sought the expertise of numerous private-sector individuals and companies, most recently appointing five firms to develop potential user interfaces.
The companies appointed were: CaixaBank, which is concentrating on peer-to-peer online payments; Worldline, which is looking at peer-to-peer offline payments; the EPI (European Payments Initiative) company, which is examining point-of-sale payments initiated by the payer; Nexi, which is exploring point-of-sale payments initiated by the payee; and Amazon, which is focusing on e-commerce payments. The companies are not being remunerated for their efforts and the ECB has said there are no plans to re-use the prototypes in subsequent digital euro project phases.
Members of the European Parliament (MEPs) have queried the selection of Amazon, expressing concerns including the company’s US roots and market dominance. In an appearance before a parliamentary committee on 29 September ECB executive board member Fabio Panetta mounted a sustained defence of the process and purpose of appointing the company, saying that the ECB was solely focused on learning about technological solutions and was not “making any deal on future co-operation”.
In parallel the ECB is also working with the central banks of Austria, Belgium, Finland, France, Germany, Italy, Portugal and Spain (all eurozone states) on ‘back-end’ prototyping.
Other moves by the ECB to engage private-sector support have included an invite, issued in July, to external experts to participate in a short series of technical deliberations on data privacy-related challenges involved in designing a digital euro; and a tender for digital euro-related design and business model consultancy, worth a total value of EUR20m (about £17.5m) and which carried a 25 March application deadline.
The ECB is also being informed on CBDC by a ‘Market Advisory Group’ (MAG), which meets at least quarterly and comprises 30 private-sector retail payments specialists. Representatives of CaixaBank, Worldline, EPI and Nexi are in the MAG (but not Amazon).
Singapore focuses on ‘purpose-bound’ money
Central banks worldwide are stepping up their explorations into the possibilities of CBDC but relatively few have committed to going ahead. China is among the exceptions, with its development of the ‘digital yuan’ cementing its status as a CBDC frontrunner.
In terms of the ECB’s timeline, its governing council is scheduled to decide in autumn 2023 whether to start a digital euro ‘realisation phase’. This could last ‘around three years’, according to a recently published ‘Progress on the investigation phase of a digital euro’ update. A decision on possible issuance of a digital euro ‘may only come later’.
Meanwhile, the European Commission expects to publish a proposal for a regulation to establish and govern essential aspects of the digital euro in the first quarter of 2023.
On the topic of programmable payments, the Monetary Authority of Singapore (MAS) published an analysis of its explorations into potential use cases of what it refers to as ‘purpose-bound’ digital money earlier this week.
Purpose-bound money (which the report abbreviates to as ‘PBM’) is described by MAS as building on the concept and capabilities of programmable payments and programmable money (the possibility of embedding rules within the medium of exchange itself that defines or constraints its usage). PBM, the 55-page paper explains, specifically refers to a protocol that specifies the conditions upon which an underlying digital currency can be used, with a crucial aspect being that the ‘underlying digital medium of exchange bound within it comes embedded with programmable logic that makes it possible for use across different platforms and systems’.
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‘ECB to begin compiling digital euro “rulebook”’ – our news story (5 October 2022) on Fabio Panetta telling the EP’s economic and monetary affairs committee that the authority would ‘soon start work on a rulebook for the digital euro scheme’ in the context of working with private banks to distribute the digital euro and for financial services companies more broadly to ‘build on it to develop further innovative solutions for their customers’
‘Five companies picked to prototype digital euro user interfaces’ – our report (16 September 2022) on the ECB appointing the five companies (from 54 applications)
‘Government payments among three priority use cases for digital euro: ECB’ – our report (7 September 2022) from a half-day event (‘A Digital Euro: Challenges And Opportunities’) featuring the ECB’s digital euro programme manager Evelien Witlox
‘Fifteen recommendations offered for digital euro as ‘investigation phase’ nears half way’ – our news story (24 Aug 2022) on a paper by the Digital Euro Association
‘Digital currency design must be alert to users’ needs: Austrian CBDC paper’ – our news story (16 August 2022) on a working paper published by Oesterreichische Nationalbank (OeNB)
‘ECB consults experts over ‘privacy-enhancing’ digital euro tech’ – our news story (20 July 2022) on the ECB inviting external experts to participate in a short series of deliberations on data privacy-related challenges involved in designing a digital euro
‘ECB kicks off €20m tender for digital euro architects’ – our news story (2 March 2022) on the ECB’s tender for design and business model consultancy
‘D€: unanswered questions (and quirks) amid Europe’s CBDC “nitty-gritty”’ – our analysis (20 September 2021) of eurozone central banks’ digital currency explorations
‘Digital euro tech investigations would take two years: ECB’s Panetta’ – our news story (15 April 2021) on a Fabio Panetta appearance before the EP’s economic and monetary affairs committee (on 14 April 2021)