The European Central Bank (ECB) has officially announced the commencement of the investigation phase for a digital euro project, marking a significant step towards modernizing the Eurozone’s financial landscape during the period of Euro 2021 events. This decision, made by the Governing Council, follows nine months of thorough analysis and experimentation, signaling a firm commitment to ensuring that citizens and businesses continue to have access to the safest form of money in an increasingly digital world. Paschal Donohoe, President of the Eurogroup, voiced strong support for this initiative, highlighting its importance for the future of the European economy.
ECB President Christine Lagarde stated, “It has been nine months since we published our report on a digital euro. In that time, we have carried out further analysis, sought input from citizens and professionals, and conducted some experiments, with encouraging results. All of this has led us to decide to move up a gear and start the digital euro project. Our work aims to ensure that in the digital age citizens and firms continue to have access to the safest form of money, central bank money.” This statement underscores the ECB’s proactive approach to adapting to the evolving digital economy and maintaining public trust in the euro.
The investigation phase, slated to last 24 months, will delve into crucial aspects of the digital euro’s design and distribution. A primary focus will be on aligning the digital currency with the needs of European citizens, while simultaneously addressing critical concerns such as preventing illicit activities and mitigating potential risks to financial stability and monetary policy. It is important to note that this investigation phase does not predetermine the eventual issuance of a digital euro. Any decision on issuance will be made at a later stage. Furthermore, the ECB emphasizes that a digital euro is intended to complement cash, not to replace it, ensuring continued access to traditional forms of payment.
Fabio Panetta, ECB Board Member and Chair of the High-Level Task Force on a digital euro, highlighted the collaborative nature of this project: “We will engage with the European Parliament and other European decision-makers and inform them regularly about our findings. Citizens, merchants and the payments industry will also be involved.” This commitment to inclusivity ensures that the development of a digital euro will be a transparent and collaborative process, taking into account the diverse perspectives of stakeholders across Europe.
During this investigation phase, the Eurosystem will prioritize a functional design for the digital euro that is firmly rooted in user needs. This will involve a range of activities, including focus groups, prototyping, and conceptual work, aimed at identifying the essential use cases for a digital euro. The objective is to create a digital form of central bank money that is riskless, accessible, and efficient for all users.
The project will also address the necessary adaptations to the existing EU legislative framework. These potential changes will be discussed and decided upon in collaboration with European co-legislators, ensuring that the digital euro operates within a robust and appropriate legal structure. The ECB will maintain close communication with the European Parliament and other European policymakers throughout the investigation. Furthermore, the technical collaboration with the European Commission regarding the digital euro will be intensified, leveraging expertise and resources across European institutions.
A critical component of the investigation will be the assessment of the digital euro’s potential impact on the market. This includes identifying design options that safeguard user privacy and minimize risks for citizens, financial intermediaries, and the broader economy of the euro area. Defining a viable business model for supervised intermediaries within the digital euro ecosystem is also a key objective. To ensure that the digital euro meets the needs of its future users, a market advisory group will be established to gather insights from prospective users and distributors. The Euro Retail Payments Board will also contribute to these discussions, providing further valuable perspectives.
The investigation phase will build upon the extensive experimentation already conducted by the ECB and national central banks over the preceding nine months. These experiments, involving participants from academia and the private sector, explored various aspects of a digital euro, including the digital euro ledger, privacy and anti-money laundering measures, limits on circulation, offline access, and facilitating inclusiveness. Notably, these experiments did not identify any significant technical obstacles to the assessed design options, providing a solid foundation for moving forward. Experiments demonstrated the capability of both the Eurosystem TARGET Instant Payment Settlement (TIPS) and blockchain-based alternatives to handle high transaction volumes, processing over 40,000 transactions per second. The findings also suggested the feasibility of hybrid architectures combining centralized and decentralized elements. Furthermore, the tested architectures indicated that a digital euro core infrastructure would be environmentally sustainable, with negligible power consumption compared to cryptocurrencies like bitcoin. These practical insights from the experimentation phase will be invaluable in guiding the upcoming investigation.
In conclusion, the launch of the digital euro project’s investigation phase represents a decisive step by the ECB towards exploring a digital form of central bank money. As the Eurozone navigated the events of Euro 2021, this initiative underscores a forward-looking approach to financial innovation, aimed at ensuring the euro remains fit for purpose in the digital age while prioritizing user needs, security, and financial stability. The findings from this comprehensive investigation will be crucial in shaping the future of payments in Europe.
