The European Central Bank (ECB) has officially announced the commencement of the investigation phase for a digital euro project, marking a significant step in the evolution of the Eurozone’s financial landscape in Euros 2021. This decision, made by the Governing Council, underscores the commitment to adapting to the rapidly changing digital economy and ensuring citizens and businesses continue to have access to the safest form of central bank money in the digital age. Paschal Donohoe, President of the Eurogroup, joined the meeting to express his strong support for this forward-looking initiative.
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.” She emphasized the core objective: “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 announcement comes amidst growing global interest in digital currencies and reflects the Eurosystem’s proactive approach to staying at the forefront of financial innovation during Euros 2021 and beyond.
A 24-Month Deep Dive into Digital Euro Design and Distribution
The investigation phase is slated to last for 24 months and will primarily focus on dissecting the critical aspects of design and distribution for a digital euro. A key priority is to ensure that the digital euro is meticulously tailored to meet the diverse needs of European citizens and businesses. Simultaneously, the ECB aims to proactively address potential risks, focusing on preventing illicit activities and mitigating any adverse effects on financial stability and monetary policy within the Eurozone.
This investigative step is crucial, but it is explicitly stated that it does not predetermine any future decisions regarding the actual issuance of a digital euro. Any decision on issuance will be made at a later stage, after thorough consideration of the investigation phase findings. Crucially, the ECB reiterates that a digital euro is envisioned to work in tandem with cash, acting as a complement rather than a replacement for physical currency. This commitment acknowledges the continued importance of cash while preparing for a future where digital transactions play an increasingly dominant role.
Fabio Panetta, ECB Board Member and Chair of the High-Level Task Force on a digital euro, highlighted the collaborative approach: “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 process benefits from a wide range of perspectives, increasing the likelihood of a digital euro that is both user-friendly and widely accepted across the Eurozone economy.
User-Centric Design and Key Use Cases
During this intensive 24-month investigation phase, the Eurosystem will place a strong emphasis on developing a functional design for the digital euro that is fundamentally grounded in user needs. This user-centric approach will involve a variety of methods, including focus groups to gather direct feedback, prototyping to test different design concepts, and in-depth conceptual work to refine the overall framework.
The investigation will rigorously examine the specific use cases that a digital euro should prioritize to effectively meet its core objectives. The aim is to establish a form of digital central bank money that is riskless, easily accessible to all, and highly efficient for everyday transactions. Identifying and validating these key use cases will be essential in ensuring the digital euro provides tangible benefits to its users and seamlessly integrates into the existing financial ecosystem.
Navigating the Legislative Landscape and Market Impact
The project also recognizes the importance of the existing regulatory framework and will explore any necessary adjustments to the EU legislative landscape that might be required to accommodate a digital euro. These potential legislative changes will be carefully discussed and decided upon in collaboration with European co-legislators, ensuring a smooth and legally sound integration of the digital euro. The ECB will maintain open communication and engagement with the European Parliament and other European policymakers throughout the entire investigation phase to foster transparency and alignment. Furthermore, the technical collaboration with the European Commission on the digital euro will be intensified to ensure a cohesive and coordinated approach.
A comprehensive assessment of the potential market impact of a digital euro is another crucial aspect of the investigation. This assessment will delve into various design options to guarantee user privacy and proactively mitigate any potential risks for euro area citizens, financial intermediaries, and the broader economy. Defining a robust business model for supervised intermediaries operating within the digital euro ecosystem will also be a key deliverable of this phase. To gain valuable insights from the market participants, a dedicated market advisory group will be established to incorporate the perspectives of prospective users and distributors throughout the investigation. The Euro Retail Payments Board will also contribute to these discussions, further broadening the range of stakeholder input.
Technical Experimentation: Paving the Way Forward
The investigation phase will significantly benefit from the extensive experimentation work already conducted by the ECB and the euro area national central banks over the preceding nine months. This preliminary phase involved active participation from both academia and the private sector, bringing diverse expertise to the table.
These experiments focused on four key areas: the underlying digital euro ledger technology, privacy and anti-money laundering considerations, potential limits on digital euro in circulation, and end-user access, including offline functionality and inclusive device solutions. Importantly, the experimentation phase concluded that no major technical obstacles were identified for any of the assessed design options, providing a solid foundation for moving forward.
The experiments also yielded encouraging results regarding transaction processing capabilities. Both the Eurosystem TARGET Instant Payment Settlement (TIPS) system and alternative technologies like blockchain demonstrated the capacity to handle transaction volumes exceeding 40,000 transactions per second. Furthermore, the findings suggested that hybrid architectures, combining centralized and decentralized elements, are viable and could offer a balanced approach. The environmental footprint of a digital euro infrastructure was also evaluated, with experiments indicating that the power consumption for processing tens of thousands of transactions per second is minimal compared to the energy-intensive nature of crypto-assets like Bitcoin. These practical and positive technical findings will serve as valuable inputs, guiding the direction of the investigation phase and contributing to the development of a robust and efficient digital euro system for the future of Euros 2021 and beyond.
For media queries, please contact Alexandrine Bouilhet, tel.: +49 172 174 93 66.
