Date: 18 October, 2023
Key points:
- This upcoming phase will establish the groundwork for a potential digital euro, involving the finalization of a rulebook and the selection of providers to develop the necessary platform and infrastructure.
- The Governing Council is set to initiate the digital euro preparation phase, marking the conclusion of a two-year investigation into the design and distribution of a digital euro.
- The preparation phase is a crucial step towards a potential decision on issuing a digital euro in the future, representing a strategic move in the evolution of digital currency.
The European Central Bank’s Governing Council made the decision to progress to the subsequent stage of the digital euro project, entering the preparation phase.
The choice to enter the preparation phase comes after the Eurosystem initiated an investigation phase in October 2021 to examine potential design and distribution frameworks for a digital euro. Building on the outcomes of this phase, outlined in “A stocktake on the digital euro” report, the ECB has formulated a digital euro that aims for broad accessibility to both individuals and businesses, utilizing supervised intermediaries like banks for distribution.
The envisioned design portrays the digital euro as a digital equivalent of physical cash, serving for all digital transactions across the euro area. It aims to be easily accessible, with no cost for basic usage, and available in both online and offline contexts. Providing top-tier privacy, it enables users to promptly settle payments in central bank currency. Its utility spans person-to-person transactions, point-of-sale interactions, e-commerce, and government dealings, encompassing a comprehensive set of features that distinguishes it from existing digital payment instruments. The digital euro is poised to address this unique combination of attributes currently lacking in other digital payment options.
Commencing on November 1, 2023, the subsequent stage of the digital euro initiative, known as the preparation phase, began and lasted for an initial period of two years. This phase involved the finalization of the digital euro rulebook and the identification of potential providers capable of constructing a platform and infrastructure for the digital euro. Furthermore, it included testing and experimentation to create a digital euro aligned with both the Eurosystem’s specifications and user requirements, encompassing aspects such as user experience, privacy, financial inclusion, and environmental impact. The ECB maintained ongoing engagement with the public and all relevant stakeholders throughout this phase. Following the two-year duration, the Governing Council made a decision regarding the progression to the subsequent preparation stage, potentially leading to the issuance and implementation of a digital euro in the future.
Christine Lagarde, the President of the ECB, emphasized “We need to prepare our currency for the future”. She expressed the vision for a digital euro, conceived as a digital representation of physical cash usable for all digital transactions without any associated charges, while maintaining stringent privacy standards. The concept involved its coexistence with physical cash, which would perpetually remain accessible, ensuring inclusivity for all.
Access to digital euro services could be obtained through the proprietary app and online interface of users’ payment service providers or through a dedicated digital euro app provided by the Eurosystem. Even individuals lacking access to a bank account or digital devices would have the capability to make digital euro payments, such as using a card supplied by a public entity like a post office. Additionally, users would retain the option to convert digital euro to cash or vice versa using cash machines.
The Eurosystem envisions a digital euro with free basic usage for individuals. A compensation model, mirroring arrangements for other electronic payment methods, would establish incentives for intermediaries to distribute digital euro, while ensuring safeguards against excessive service charges for merchants. The Eurosystem would assume its own costs, covering aspects like scheme management and settlement processing.
Transparency and extensive collaboration with stakeholders remain fundamental aspects of the project. The Eurosystem has greatly valued input from European decision-makers, market participants, and potential users, and is committed to continued active engagement with a diverse range of stakeholders. Ongoing close cooperation with EU legislators is also part of the initiative.
References:
https://www.ecb.europa.eu/press/pr/date/2023/html/ecb.pr231018~111a014ae7.en.html#:~:text=The%20next%20phase%20of%20the%20digital%20euro%20project%20%E2%80%93%20the%20preparation,digital%20euro%20platform%20and%20infrastructure.