The Governing Council of the European Central Bank (ECB) has decided to launch the investigation phase of a digital euro project. In a 9-month preliminary experimentation phase, states the ECB, “no technical obstacles” were identified.
“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”.
24 months of work
The investigation phase will last 24 months and aim to address key issues regarding design and distribution: meeting 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.
Will a digital euro be issued? Officially, nothing is decided yet
The start of the investigation phase does not mean a digital euro will be issued: the decision, states the EBC, will come only later. And, clarifies the ECB, “in any event, a digital euro would complement cash, not replace it”.
“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”, says ECB Board Member Fabio Panetta, Chair of the High-Level Task Force on a digital euro.
Issues and doubts about the digital euro
The project investigation phase will focus on:
- a possible functional design based on user needs, involving focus groups, prototyping, and conceptual work;
- use cases to be provided as a matter of priority in order for the digital euro to meets its objectives, “a riskless, accessible, and efficient form of digital central bank money”;
- changes to the EU legislative framework which might be needed and that will be discussed with (and decided by) European co-legislators.
- The European Parliament and other European policymakers will be engaged throughout the investigation phase, as well as the European Commission.
What impact on traditional banks from the digital euro?
The investigation phase will also investigate some open issues about Central Bank Digital Currencies, like the possible impact of a digital euro on the market, i.e. financial intermediaries and payment service providers, as well as privacy and risks concerns for citizens.
The BCE states it will also define a business model for intermediaries within the digital euro ecosystem: a very sensitive issue for banks.
TIPS or blockchain? Why not some of both
As for the infrastructure the digital euro could be based on, all options are still open: both the Eurosystem TARGET Instant Payments Settlement (TIPS) and blockchain- and DLT-like alternatives were proven capable of processing more than 40k transactions per second. And the architecture may as well combine centralized and decentralised elements.
One important result coming from the European experiments on central bank digital currency addresses the worries about cryptocurrencies’ and bitcoin’s energy consumption. During the tests, architectures ran tens of thousand of transactions with an energy consumption much smaller than bitcoin's.
