The European Central Bank (ECB)’s Governing Council has given a thumbs-up to move to a ‘preparation phase’ for a digital euro.
The long-anticipated approval, announced today (18 October), follows the wrapping-up of the ‘investigation phase’ launched by the Eurosystem – which comprises the ECB and the national central banks of the 20 European Union (EU) member states whose currency is the euro – in October 2021 to explore possible design and distribution models for a potential eurozone central bank digital currency (CBDC).
Based on the findings of its explorations over the past two years – detailed in a 44-page report (‘A stocktake on the digital euro: Summary report on the investigation phase and outlook on the next phase’) also published today – the ECB says it 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,’ the ECB states. ‘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. No digital payment instrument offers all these features. The digital euro would fill that gap.’
The preparation phase – which the Frankfurt-headquartered authority had previously been referring to as a ‘realisation phase’ – will kick off on 1 November and will initially run for two years.
RELATED ARTICLE ECB’s Panetta dismisses ‘programmable’ use for digital euro – a news article (30 January 2023) on Fabio Panetta saying that a potential digital euro will ‘never be programmable money’ in an appearance before the European Parliament’s committee on economic and monetary affairs.
‘Rulebook’ finalisation among priorities
The preparation phase will involve finalising what is being referred to as the digital euro ‘rulebook’ and selecting providers that could develop a digital euro platform and infrastructure. A digital euro scheme rulebook development group to support the drafting of a single set of rules, standard, and procedures for the digital euro held its first meeting in February 2023.
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 rollout of a digital euro’.
The ECB emphasises that its move into the preparation phase is not a decision on whether to issue a digital euro. That decision will only be considered by the Governing Council once the EU’s legislative process has been completed. The ECB will, it says, ‘take into account any adjustments to the design of the digital euro that may become necessary as a result of the legislative deliberations’.
The focus of the ECB’s announcement is, as expected, on a retail CBDC (also known as a general purpose CBDC), as distinct from a wholesale CBDC (for interbank use). The ECB’s wholesale CBDC explorations are largely operating via different workstreams and collaboration groups.
RELATED ARTICLE ECB to begin compiling digital euro “rulebook” – our news story (5 October 2022) on Fabio Panetta telling the European Parliament’s economic and monetary affairs committee that the authority would ‘soon start work on a rulebook for the digital euro scheme’
‘Resilience, competition and innovation’
Just a handful of nations – including the Bahamas, Jamaica and Nigeria – have so far issued a CBDC but most have been stepping up their explorations and experimentation around the opportunities and challenges of doing so. Among the biggest nations, authorities in both China and India have been regularly issuing updates on their progress towards full CBDC issuance.
The aim of the digital euro, the ECB states, is to promote ‘resilience, competition and innovation’ in the continent’s payments sector.
“As people increasingly choose to pay digitally, we should be ready to issue a digital euro alongside cash,” said the ECB’s soon-to-depart executive board member Fabio Panetta (who is also chair of a high-level taskforce on a digital euro but leaving to become governor of the Bank of Italy next month). “A digital euro would increase the efficiency of European payments and contribute to Europe’s strategic autonomy.”
If a digital euro were to launch, people will be able to access digital euro services via their payment service provider’s proprietary app and online interface or via a digital euro app provided by the Eurosystem. People without access to a bank account or digital devices would also be able to pay with digital euro, ‘for example by using a card provided by a public body such as a post office’, the ECB states.
Amid concerns about state access to data on what citizens spend their money on, the ECB states the digital euro would prioritise data protection a priority. ‘The Eurosystem would not be able to see users’ personal data or link payment information to individuals. The digital euro would also achieve a cash-like level of privacy for offline payments,’ a press release states.
The European Data Protection Board (EDPB) and European Data Protection Supervisor (EDPS) today issued a joint opinion on the proposed regulation on the digital euro, making several recommendations to ‘better ensure the highest standards of personal data protection and privacy for the future digital euro’.
RELATED ARTICLE 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
ECB’s digital euro team
Recruitment is currently underway for several expert positions in the digital euro programme team, part of the ECB’s Directorate-General Market Infrastructure and Payments.
Senior figures already involved in the digital euro project include programme director (formerly programme manager) Evelien Witlox, who left Dutch bank ING to join the ECB in January last year; Daniel McLean, the distribution lead for the digital euro who joined the ECB a decade ago; and Christian Schäfer, formerly a long-serving director at Deutsche Bank in Frankfurt, who is chair of the digital euro rulebook development group.
McLean was among the panellists at the Global Government Fintech Lab 2023, held in Ireland in May 2023. He pointed out that broader challenges facing the digital euro include the fact that the eurozone is home to about 340 million people with ‘very different cultures’ and ‘very different payment habits’.
The ECB has to date engaged numerous external parties for support on CBDC. For example, it awarded digital euro-focused framework contracts with five consultancies for digital euro consultancy late last year (Accenture, Bearing Point, Deloitte Consulting, Oliver Wyman and Roland Berger). This followed the ECB’s selection of a different five companies to prototype digital euro user interfaces (Amazon, CaixaBank, the European Payments Initiative company, Nexi and Worldline – all non-remunerated contracts).
On 4 October the ECB called for expressions of interest to participate in ‘technical talks on the secure exchange of data’. The talks are scheduled for early December 2023.
Global Government Fintech’s ‘Digital Currencies’ section