Eurosystem proceeds to next phase of digital euro project

The Governing Council of the ECB has approved the commencement of the preparation phase for the digital euro project. This decision follows the completion of the investigation phase initiated by the Eurosystem in October 2021 to explore potential design and distribution models for a digital euro.
The design of the digital euro aims to make it widely accessible to citizens and businesses through supervised intermediaries like banks. It is envisioned as a digital form of cash suitable for digital payments across the euro area, offering both online and offline accessibility, high privacy, and instant settlement in central bank money.
The preparation phase, which started on 1 November 2023 and which will initially last for two years, will focus on finalizing the digital euro rulebook, selecting platform providers, and conducting testing and experimentation to meet user needs, including user experience, privacy, financial inclusion, and environmental considerations. Public engagement will continue during this phase.
The launch of the preparation phase does not constitute a decision to issue the digital euro. Such a decision will only be made after the European Union’s legislative process is completed, taking into account any necessary design adjustments.
The digital euro emphasizes data protection, ensuring that the Eurosystem cannot access users‘ personal data or link payment information to individuals. It also offers a cash-like level of privacy for offline transactions.
Furthermore, the digital euro is expected to promote resilience, competition, and innovation in the European payments sector by providing a pan-European payment solution under European governance. It will rely on its own infrastructure and facilitate European intermediaries in delivering pan-European services.
Users can access digital euro services through their payment service providers‘ apps, a digital euro app provided by the Eurosystem, or even using cards provided by public bodies for those without bank accounts or digital devices. The basic use of the digital euro for individuals is free, and a compensation model between intermediaries and merchants will ensure incentives for distribution.
Transparency and collaboration with stakeholders remain integral to the project, with active engagement with European decision-makers, market participants, potential users, and EU legislators continuing throughout the project’s development.
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The corresponding report A stocktake on the digital euro – Summary report on the investigation phase and outlook on the next phase points out that the ECB has conducted a thorough investigation into the feasibility of introducing a CBDC over the past two years. This initiative is a response to the growing popularity of digital payments in today’s society, similar to efforts by other major central banks globally.
During this investigation phase, the Eurosystem, which comprises the ECB and national central banks, has developed a high-level product design for the digital euro, along with functional and non-functional user requirements. This work was substantiated by prototyping activities to validate the proposed design and focus group research to gather input from end users and stakeholders.
Market research has revealed the existence of a diverse pool of European providers capable of developing digital euro solutions, and various architectural and technological design options are available for consideration.
A digital euro is seen as a crucial step in the evolution of the European currency, offering a range of essential features. It would be widely accepted, free for basic use, usable for various digital payments within the euro area, and capable of functioning offline while ensuring the highest levels of privacy and security. Additionally, it would provide instant settlement, be risk-free as it is issued by the central bank, and suitable for both point-of-sale and person-to-person transactions, offering a unique set of characteristics not found in other digital payment methods.
The introduction of a digital euro would complement physical euro cash and other electronic payment methods, providing users with increased choice and security. Importantly, the central bank’s role is to offer free access to safe money, making the transition from private money to central bank-backed currency smoother.
Privacy is a paramount concern, with the central bank committed to not monitoring payment patterns or storing personal data that could identify users. The digital euro aims to offer a cash-like level of privacy, especially for offline transactions, relying on direct transfers from payer to payee.
To address European dependency on foreign payment service providers and enhance resilience, a digital euro would provide a European-governed payment solution, its own infrastructure, and a pan-European platform for payment service providers. This would bolster the overall efficiency of the payments system, reduce costs, and foster innovation.
While the digital euro is progressing through the legislative framework, it is crucial to maintain the option of physical euro cash. The ECB will make a decision on issuing the digital euro once the legislative process is complete.
The Eurosystem’s work on the digital euro has consistently shown its relevance, as it aligns with key benefits of cash, supports competition and innovation, strengthens European autonomy, and enhances payment system resilience. The Governing Council of the ECB has decided to advance to the preparation phase of the project, although a final decision on issuance is pending legislative developments.