ECB advances digital euro project to preparation phase
- The preparation phase is expected to extend over two years.
- It’s crucial to note that this development doesn’t signify an immediate issuance of a digital euro.
The European Central Bank (ECB) officially entered the preparation phase in its pursuit of a digital form of the euro on 18 October.
Christine Lagarde, the President of the ECB, expressed the need to modernize the currency, stating on Twitter,
“We need to prepare our currency for the future. While we haven’t yet decided whether to issue a digital euro, we’re getting ready. We envision a digital euro… that can serve for all digital payments, coexisting with physical cash, leaving no one behind.”
The preparation phase will include finalizing the digital euro rulebook, selecting potential providers to construct the necessary platform and infrastructure, and conducting extensive testing, experimentation, as well as engaging with the public and stakeholders.
This phase, commencing in November, is expected to extend over two years, following a two-year investigation phase that began in October 2021.
Digital Euro gains momentum
The ECB highlighted that a digital euro could be deployed across the entire euro area. It mentioned that the digital currency could provide advantages such as low costs, high privacy, and instantaneous settlement.
The digital currency would also find application in various transactions. This includes, but is not limited to peer-to-peer, government, and retail, aiming to combine these features in a single offering.
The ECB acknowledged the limitations of current digital payment instruments in delivering these features comprehensively and positioned the digital euro as the solution to address these shortcomings.
Moreover, the ECB sought to address concerns regarding privacy. It asserted that any digital euro offering would provide “cash-like privacy” while prioritizing data protection.
The Eurosystem, as per the ECB, would not have access to users’ personal details. However, the institution would retain the ability to trace illicit activities, as highlighted in a FAQ page.
It’s crucial to note that this development doesn’t signify an immediate issuance of a digital euro. The ECB clarified that the final decision rests with its Governing Council. This is pending the completion of the legislative process by the European Union.
The extent to which the digital euro will rely on blockchain and related technologies remains uncertain. Nevertheless, the ECB’s FAQ pages indicated an exploration of distributed ledger technologies (DLT) and decentralized systems in addition to centralized systems.
The ECB also stressed that regardless of the underlying technology, the digital euro would not be classified as a cryptocurrency. Unlike cryptocurrencies, the proposed digital euro would be backed by a central entity.
Interestingly, the ECB alternately referred to the asset as a central bank digital currency [CBDC] in its FAQ pages, despite commonly referring to it as the “digital euro.”