The two-year research phase of the European Central Bank’s (ECB) digital euro project has reached its halfway point. The ECB published a status report on September 29, reviewing the design and policy issues that are under consideration or have been decided.
The report notes that brick-and-mortar and online commerce is the largest use case for a euro central bank digital currency (CBDC). Currently, most digital payment solutions are limited in scope and not of European origin. Therefore, a digital euro could harmonize payment solutions and strengthen Europe’s strategic autonomy in accordance with political objectives. According to the report:
“A digital euro would preserve the role of public money as the anchor of the payment system in the digital age. It would guarantee the smooth coexistence, convertibility and complementarity of the different forms that money takes.”
The Governing Council of the ECB has approved the exploration of online payments validated by a third party as part of a first launch of the digital euro, as well as an offline peer-to-peer validated solution with no deadline. Online peer-to-peer solutions will not be explored further at this stage.
Anti-money laundering requirements and the desire to limit the use of CBDC in investments prevent the full anonymity of a digital euro, but the report suggests that a digital euro would have privacy provisions similar to current digital payment options. , with potentially greater privacy for low-value, low-risk transactions.
The digital euro will restrict large holdings and will be designed to limit its use as an investment instrument, for financial stability considerations. The Governing Council has approved a cascade mechanism that could transfer over-limit digital euro holdings to a commercial bank account. An offline holding limit may also be imposed. A “comprehensive set of tools” will be incorporated to respond to future financial conditions.
The European Commission will propose a regulation to establish the digital euro in the first quarter of 2023. The Governing Council will decide in October 2023 whether to move to development and testing. This phase can last about three years.
In a statement in front of the EU Parliament, the ECB board Panetta confirmed that the ECB’s Governing Council has now endorsed a first set of foundational design choices for the digital euro.
He mentions these two explicitly:
— Patrick Hansen (@paddi_hansen) September 29, 2022
The status report focused exclusively on a retail CBDC. The member of the Executive Committee of the ECB, Fabio Panetta, recently spoke about the possibility of creating a wholesale digital euro for use by banks and financial institutions. Panetta summarized the progress of the digital euro in his quarterly presentation to the European Parliament’s Committee on Economic and Monetary Affairs also on September 29.
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