The European Central Bank has published its second investigation report detailing the design and distribution options for the upcoming digital euro. The report will be reviewed by the bank’s Governing Council in the second half of 2023, when it will decide on whether to issue the digital currency.
Earlier this week, the European Central Bank (ECB) released a second report updating the progress made by the bank to issue a digital version of the Euro. The document presents a set of design and distribution options for the central bank issued digital currency (CBDC), recently proposed by the bank’s Governing Council, and defines roles of the ECB and other market participants in the digital euro ecosystem.
Similar to today’s banknotes, the digital euro will be a liability on the balance sheet of the Eurosystem – the monetary authority of the Eurozone consisting of the ECB and other national central banks of the bloc’s member states. Hence, the Eurosystem will be in full control over the issuance and settlement structure of the digital currency.
The document further explains that entities authorised by the ECB, such as credit institutions and payment service providers, will be in charge of distributing the digital euro to its end users which includes individuals, merchants and businesses. The institutions will help open digital euro wallets, process payments, conduct know-your-customer (KYC) procedures, anti-money laundering checks, and provide other related services to consumers. “Paying in digital euro should always be an option, irrespective of the entity with which end users open digital euro accounts or wallets and of their country of origin,” emphasised the Eurozone’s central bank.
Furthermore, the monetary authority assured that the digital currency by design will minimise its involvement in processing user data. The Eurosystem will not be able to “infer” how much digital euro any individual end user holds nor “infer” end users’ payment patterns.
The ECB assures that the digital euro will be environmentally friendly, with the energy consumed when processing a high volume of transactions being “negligible” in comparison to the power that is needed to process transactions on the Bitcoin (BTC) network. The Eurosystem’s TARGET Instant Payment Settlement (TIPS) protocol was able to process more than 40,000 transactions per second using the digital currency.
The investigation phase for the digital euro project was launched last year, and the ECB released its first progress report in September, which looked into how citizens and firms in the digital age will “continue to have access to the safest form of money”, a central bank digital currency. In the next phase, the European Central Bank will develop a rulebook containing guidelines for the distribution scheme of the digital euro, which will be released in January. The Governing Council will review results of the study late next year and decide when to officially release the digital currency into the economy.
“In the remainder of the investigation phase, work will continue on assessing a number of design and distribution options for a digital euro, including advanced functionalities for digital euro payments, and additional aspects of the digital euro distribution model. The investigation phase also includes a prototyping exercise to test how well potential back-end solutions developed by the Eurosystem could be integrated with front-end prototypes. The prototyping exercise is expected to be completed in the first quarter of 2023 when the ECB will also publish its findings,” read the progress report.