The European Central Bank (ECB) has kicked off a tender process for design and business model consultancy for a potential digital euro.
The procurement notice carries a total value of €20m (about £16.7m) and is likely to have major companies scrambling to get directly involved with a potential European central bank digital currency (CBDC).
The process follows the start of the ‘investigation phase’ into a potential digital euro that began six months ago. This is expected to run until October 2023 and is focused on the design and distribution options for a potential Eurozone digital currency. Then, ‘at the end of’ 2023, the ECB could move to what it describes as a ‘realisation phase’ to ‘develop and test the appropriate technical solutions and business arrangements necessary to provide a digital euro’, which could take a further three years.
In its tender notice, the ECB states that it wants to engage ‘strategic partners for consultancy services that allow the delivery of excellent, strategic capabilities to support solving complex questions that are not only new to the ECB but also globally in the context of CBDCs’.
The notice goes on to detail that the ECB ‘is seeking through this negotiated procedure suppliers for the provision of consultancy services for digital euro design, business model and realisation with regard to the investigation – and eventually realisation – phase of a digital euro.’ It adds that the Frankfurt-based authority envisages offering five framework contracts, which will be awarded to suppliers offering the best value for money.
Five successful bidders envisaged
The tender, which is posted on the Tenders Electronic Daily (TED) portal, states that the services to be provided focus on the digital euro’s investigation phase and ‘subject to the decision of the ECB Governing Council to continue the project after the investigation phase – [the] realisation phase of the digital euro project.’
Contracts would be four years in duration, with a maximum of two annual extensions. Following a ‘pre-qualification phase’, 10 candidates are envisaged to be invited to tender. ‘This number is twice the number of five successful bidders that are envisaged to be awarded with a framework agreement after the bidding phase and a potential subsequent negotiation phase,’ the procurement notice explains.
The deadline for companies to apply is 25 March. The ECB estimates that it will send out invites to tender to selected candidates around 31 May.
ECB executive board member Fabio Panetta delivered a speech on 18 February titled ‘Central bank digital currencies: defining the problems, designing the solutions’ at the US Monetary Policy Forum.
“In a digital world CBDCs are necessary to preserve the role of central bank money as a stabilising force at the heart of the payments system and to safeguard monetary sovereignty,” the former Banca d’Italia (Bank of Italy) senior deputy governor said, going on to provide detail on the status of the ECB’s digital euro work (Global Government Fintech presents excerpts from his speech at the end of this article).
Latest move to engage private sector
The tender is the latest move by the ECB to engage private-sector support surrounding its digital euro explorations.
The authority is already being informed on CBDC by a ‘Market Advisory Group’ (MAG), which comprises 30 private-sector retail payments specialists. The MAG, whose members are drawn mainly from major European banks but also include retail-sector professionals, is meeting at least quarterly. A representative from the European Commission and representatives from Eurosystem national central banks are also participating. The Eurosystem comprises the ECB and the central banks of the 19 European Union (EU) member states that use the euro.
In terms of boosting its own staff, Evelien Witlox took up the newly created role of digital euro programme manager in January. The Dutch national was previously global director of payments at Dutch bank ING.
At the time of the announcement of Witlox’s appointment in November, Global Government Fintech reported that the ECB had about 50 team members working on the digital euro – a number that had grown as CBDC-related work has been stepped up. The ECB’s DG Market Infrastructure & Payments has also been searching for ‘senior payments industry experts to provide high-level consultancy services’ for the digital euro.
The ECB is also liaising closely with other forums, ranging from relevant committees of core European institutions to the Euro Retail Payments Board (ERPB) – the Eurosystem’s forum for institutional dialogue on retail payments.
DIGITAL EURO: latest
Global Government Fintech here presents excerpts from Fabio Panetta’s speech, ‘Central bank digital currencies: defining the problems, designing the solutions’, at the US Monetary Policy Forum on 18 February:
“CBDCs will need to be carefully designed. To be successful, they will need to add value for users, support competition rather than crowd out private innovation, and avoid risks to financial intermediation.
“We face two opposite risks: being ‘too successful’ and crowding out private payment solutions and financial intermediation, or being ‘not successful enough’ and generating insufficient demand. We take both risks seriously.
“We are interviewing focus groups to identify the characteristics of a digital euro that would add value for users. And we are working on the technical options to reconcile different objectives such as the right of individuals to confidentiality versus the public interest in guaranteeing the transparency required to counter illegal activities; or the benefits of allowing the digital euro to be widely used versus the need to safeguard financial intermediation.
“We have launched several work streams: on the design choices that can guarantee confidentiality, on the prioritisation of different use cases, and on the business options for intermediaries. We will cover areas such as cyber security and operational resilience.
“At the end of 2023 we could decide to start a realisation phase to develop and test the appropriate technical solutions and business arrangements necessary to provide a digital euro, which could take three years. Only thereafter will we decide whether to actually issue a digital euro.”
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‘D€: unanswered questions (and quirks) amid Europe’s CBDC “nitty-gritty”’ – our analysis (20 September 2021) of eurozone central banks’ digital currency explorations