The Governing Council of the European Central Bank (ECB) decided to launch the investigation phase of a digital euro project. The investigation phase will last 24 months and aim to address key issues regarding design and distribution. A digital euro must be able to meet the needs of Europeans while 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.
During the investigation phase of this project, the Eurosystem will focus on a possible functional design that is based on user needs; this 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, including a riskless, accessible, and efficient form of digital central bank money. The project will also shed light on changes that might be needed for the EU legislative framework and that will be discussed with, and decided by, the European co-legislators. ECB will continue to engage with the European Parliament and other European policymakers throughout the investigation phase. The technical work on the digital euro with the European Commission (EC) 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 consider the prospective of users and distributors of a digital euro during the investigation phase. These views will also be discussed by the Euro Retail Payments Board.
The investigation phase will benefit from the experimentation work done by ECB and the euro area national central banks over the past nine months, which involved participants from academia and the private sector. Experiments were conducted in four areas: the digital euro ledger, privacy and anti-money laundering, limits on digital euro in circulation, and 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 and alternatives such as blockchain were proven capable of processing more than 40,000 transactions per second. The experiments also suggested that architectures combining centralized and decentralized elements are possible. According to these experiments, a digital euro core infrastructure would be environmentally friendly for the architectures that were tested; the power used to run tens of thousands of transactions per second is negligible compared with the energy consumption of cryptoassets such as bitcoin. These practical findings will provide useful input for the investigation phase.
Keywords: Europe, EU, Banking, Digital Euro, Cyber Risk, Digital Currencies, CBDC, Environmental Risk, Suptech, ECB
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