The Governing Council of the ECB is to start a digital euro preparation phase. This follows the conclusion of a two-year investigation phase on design and distribution of a digital euro.

Specifically, the preparation phase will lay foundations for a potential digital euro. Work will commence to finalise a rulebook and select providers to develop the platform and infrastructure

The preparation phase will also pave the way for a potential future decision on issuing a digital euro. The ECB initiative is welcomed by global security group Giesecke+Devrient (G+D). The German-headquartered company says that the central bank digital currency represents an important future technology for the European economic area. It argues that it would sustainably strengthen its digital sovereignty and competitiveness. And promote efficiency in payment transactions.

A digital euro: promoting freedom of choice in future payments

“The digital euro would be the right answer to the growing demand for secure and reliable digital payment options. With a central bank digital currency, the euro area would get an alternative to private digital payment offers and highly volatile cryptocurrencies, with availability to everyone. Citizens would thus have even more freedom of choice when paying in the future,” Ralf Wintergerst, Group CEO of G+D, tells RBI.

“For Europe, the ECB decision is forward-looking and an important step towards strengthening our competitiveness and the monetary sovereignty of the euro area.”

In G+D’s view, any concerns accompanying the public debate on the introduction of a digital euro must continue to be addressed and discussed intensively. A project of this dimension can only be implemented on the basis of a broad political and social consensus.

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In many cases, however, scepticism about the project is also the result of incorrect assumptions. For example, G+D argues that the European Commission’s current draft legislation on the digital euro, dated June 2023, stipulates that the central bank digital currency (CBDC) should not replace cash but supplement it. It should also be available for both online and offline use, and guarantee the privacy of citizens.

Important future technology for the European economic area

Also, in G+D’s opinion, the frequently asked question of what problem the digital euro solves is the wrong approach.

“A CBDC represents an important future technology for the European economic area. The digital euro would therefore be a crucial building block for ensuring the competitiveness and prosperity of the euro area in the future,” adds Wintergerst. “All over the world, central banks are already working at full speed on digital currencies. We have to face up to this competition.”

The digital euro would be an opportunity for Europe to lay the foundation for numerous innovations. It is also an opportunity to take a leading role worldwide in the development of a CBDC.

The preparation phase launched by the Governing Council of the European Central Bank starts on 1 November 2023. It is expected to take around two years. During this time, the EU Commission will also coordinate its draft legislation of June 2023 with the member states and the European Parliament.

Smart, proportionate regulation will be key: R3

Alisa DiCaprio, Chief Economist at R3, also welcomes the preparation phase for a digital euro. DiCaprio tells RBI that smart, proportionate regulation will be key in maintaining user data and privacy.

Says DiCaprio: “As we enter the next stage of the digital euro roadmap, developing a model that upholds individuals’ security and privacy should be a top priority for the ECB.

One current significant challenge facing CBDCs is a lack of clear regulation. This creates uncertainty and a reluctance to engage with the technology. The European Commission published its legislative plans to underpin a digital euro back in June. We expect to see further regulatory clarity following the European elections next year.
I hope to see the EU and ECB embrace smart and specific regulations, such as an intermediated model. This would mean that the ECB would not record retail transactions. Instead, commercial banks would offer accounts or digital wallets to facilitate the management of CBDC holdings.
Fears over regulation and privacy have dominated conversations around CBDCs. But an intermediated model would prevent the ECB from accessing user data and alleviate privacy concerns.”

Digital euro: likely to represent a third form of money

Jack Fletcher, Head of Government Relations for Digital Currencies at R3, adds: “The European Central Bank’s decision to move into the digital euro’s preparation phase is a reassuring step amidst what has become a rather contentious issue within the bloc. Some Europeans may still have lingering concerns around the digital euro. CBDCs have become conflated with the crypto landscape and subsequent privacy concerns over the potential for a cashless society.
In the short term, a digital euro is more likely to represent a third form of money alongside physical cash, rather than a replacement. Now, the next few months should focus on fostering collaboration between the ECB, regulators, and technology providers to ensure a robust design process.
The privacy concerns and conflicting ideas around financial freedom won’t go away overnight. But having the right design framework and technology in place can help address these anxieties.”