25 years of the Euro: This is the status of the project "digital euro" the ECB

• digitalization is finding its way into payment transactions
• European Central Bank examines benefits of a digital euro
• Digital Euro in the preparation phase – first draft of the rules presented

This year the euro is already 25 years old. It was introduced as book money on January 1, 1999 – followed by the introduction of cash in 2002. The euro is now legal tender in twenty countries: Belgium, Germany, Estonia, Finland, France, Greece, Ireland, Italy, Croatia, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Austria, Portugal, Slovakia, Slovenia, Spain and Cyprus.

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“Digital Euro” project

As digitalization increases in many areas of life and changes the way we pay, the European Central Bank is exploring the benefits of a digital euro “to secure the role of central bank money” and maintain trust in the currency it says on the ECB website – even if the ECB continues to work to ensure that cash continues to be accepted in the euro area.

The “digital euro” project started in July 2021. After a two-year investigation phase for the digital euro began in October 2021, during which “potential options for the design and deployment of a digital euro” were to be examined and “extensive documentation and detailed analyzes of the completed work steps were produced”, the ECB on Based on the results, a digital euro was designed.

Draft of a digital euro

According to the European Central Bank, the digital euro would be an “electronic means of payment for mass payments issued” by it. The digital euro would essentially be a digital form of cash that would be available free of charge to everyone in the euro area as a public good and would be widely accepted.

The digital euro could be used for all digital payments, “just like cash for physical payments” and could be used “in all stores and at all merchants in the euro area” if digital payments were accepted. The digital euro would also be available offline, meaning no internet connection would be required for payments. According to the ECB, the digital euro would also be safe and private. The European Central Bank would never have access to the personal data and would never store it, which is why data protection “for offline payments would be almost as high as for cash.” In addition, the ECB guarantees value stability. The digital equivalent of the euro would always have the same value as the euro.

The digital euro would be stored in an electronic wallet that could be set up at the bank “or a public intermediary”. Electronic payments could then be made “with the phone or card both online and offline”.

Digital euro in the preparation phase

After the investigation phase, the Governing Council of the ECB gave the starting signal for the next phase of the project in October 2023: the preparatory phase. This started on November 1, 2023 and is initially scheduled to last two years. It is intended to lay the foundation for a possible digital euro. In the preparation phase, among other things, “the regulations for the digital euro should be completed” and “providers selected [werden]which could develop a platform and infrastructure for a digital euro,” writes the ECB in its press release.

In addition, “how a digital euro can be developed that meets both the requirements of the Eurosystem and the needs of users” will be tested and tested. Some important aspects here are, for example, “user experience, data protection, financial inclusion and ecological footprint”. According to its own statements, the ECB will also “seek dialogue with the public and all stakeholders” in the preparation phase, according to the press release. After two years, the decision should then be made as to whether the ESC Council wants to move on to the next phase, “to pave the way for the possible future issuance and introduction of a digital euro.”

However, the fact that the ECB Council has given the starting signal for the preparatory phase does not yet represent a decision as to whether a digital euro will actually be issued – the European Union’s legislative process must be completed beforehand. According to its own statements, the ECB will make “any adjustments to the design of the digital euro […]”that could become necessary as a result of the legislative discussions”.

First draft of the regulations

In early January 2024, the European Central Bank published a report summarizing the progress of the Rulebook Development Group (RDG), which is developing the framework for digital euro payments. Since the last update in June last year, “the RDG has drafted the first chapters of the digital euro framework in line with the legislative proposal and the decisions on the design of the digital euro approved by the Governing Council of the ECB,” it says in a statement on the website the ECB. The draft is an interim version.

The draft covers “the functional and operating models, including the end-to-end operations, that describe the functioning of all use cases and services related to a digital euro.” In addition, “the technical system requirements, which represent a high-level architecture and standards that should potentially be taken into account in a digital euro landscape” and “the compliance model that determines the rights and obligations of system members according to the draft law,” it says.

Further topics that the RDG intends to address in the future and to which sections in the draft are to be added include “(i) minimum requirements for the user experience, (ii) brand and communication standards, (iii) certification, (iv) testing and approval procedures , (v) internal rules, (vi) risk management and (vii) interoperability and implementation specifications.”

According to the ECB, the draft regulations will be so flexible that adjustments and updates can continue to be made in accordance with the results of the legislative process for the digital euro.

Editorial team finanzen.net