The investigation phase will last two years and is not set to start until October 2021. The main aim is to address key issues regarding design and distribution. A digital euro must be able to meet the needs of Europeans while at the same time helping to prevent illicit activities and avoiding any undesirable impact on financial stability and monetary policy. This will not prejudge any future decision on the possible issuance of a digital euro, which will come only later. In any event, a digital euro would complement cash, not replace it, the European Central Bank stressed.
If the ECB goes ahead with the plan, it would be the first central bank in the world to issue a purely digital euro, which could compete with the wider crypto coin and could disrupt the current market.
‘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,’ says ECB president Christine Lagarde. ‘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.’
The digital euro group will now hold meetings and consultation with a wide range of stakeholders and will prioritise that any launch will not undermine anti money laundering rules or encourage the hidden economy.
‘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,’ said ECB board member Fabio Panetta, chair of the high-level task force on a digital euro.
During the project’s investigation phase, the Eurosystem will focus on a possible functional design that is based on users’ needs. It will involve focus groups, prototyping and conceptual work.
The investigation phase will examine the use cases that a digital euro should provide as a matter of priority to meet its objectives: a riskless, accessible, and efficient form of digital central bank money.
The project will also examine possible changes to the EU legislative framework which might be needed and that will be discussed with, and decided by, European co-legislators. The ECB will continue to work with the European parliament and other European policymakers throughout the project’s investigation phase. The technical work on the digital euro with the European
Commission will also be intensified.
Finally, the investigation phase will assess the possible impact of a digital euro on the market, identifying the design options to ensure privacy and avoid risks for euro area citizens, intermediaries and the overall economy. It will also define a business model for supervised intermediaries within the digital euro ecosystem. A market advisory group will take account of prospective users’ and distributors’ views of a digital euro during the investigation phase. Those views will also be discussed by the Euro Retail Payments Board.
Experiments were conducted in four areas: the digital euro ledger; privacy and anti-money laundering; limits on digital euro in circulation; end-user access while not connected to the internet and facilitating inclusiveness with appropriate devices. No major technical obstacles were identified to any of the assessed design options.
Both the Eurosystem Target Instant Payment Settlement (TIPS) and alternatives such as blockchain were proven capable of processing more than 40,000 transactions per second. The experiments also suggested that architectures combining centralised and decentralised elements are possible.
