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• CBDC prototype already tested
• In addition to fintechs, Amazon is also involved
• The final decision will be made in autumn 2023
The latest report from the European Central Bank on the introduction of a digital central bank currency (CBDC) shows that the prototype of a digital euro has been successfully tested. The project for the possible introduction of an EU-wide digital central bank currency is scheduled for the period from July 2021 to autumn 2023 and is currently in the second test phase, which started in July last year. In contrast to Bitcoin, Ethereum and Co. Central bank money is not a decentralized cryptocurrency, but a digital euro controlled by the ECB, intended to complement cash. Because the European Central Bank is skeptical or even hostile towards distributed ledger technologies and smart contracts, as director Fabio Panetta has emphasized several times in interviews.
Introduction of a CBDC currency: Second test phase completed
This research report on the second test phase is now available. It discusses how the offline use of the digital central bank currency works, as well as its interoperability with existing payment systems. The specially developed payment processing system N€XT works with so-called Unspent Transaction Outputs (UTXO), which are intended to ensure the protection of user data through the one-time use of UTXO addresses.
The prototype shows “that it is possible to seamlessly integrate the design options for the digital euro into the existing payment landscape while leaving plenty of scope for innovative functions and technologies,” the report says. At the same time, offline use turned out to be problematic in the tests, because both software and hardware components are required to guarantee the finality of payment transactions and to prevent double spending. It remains to be seen whether this will be possible in the future. A practical offline solution that meets the security standards has not yet been found.
However, the report also concludes that “the online and offline prototypes of the digital euro can be interoperable, even if they are based on different models and technical designs”.
Digital euro: what’s next?
It is widely disputed that the US internet giant Amazon is involved in the tests of the digital central bank currency in addition to various fintech companies. Various surveys also show that many Europeans are skeptical about a digital euro.
In autumn, the decision will now have to be made as to whether the digital central bank currency should be implemented or whether the pilot project will end. ECB Director Fabio Panetta emphasizes that the actual introduction of a digital euro could take place in 2026 at the earliest, which should supplement cash and not – as many feared – replace it. “We are working on issuing a new series of high-tech banknotes to prevent counterfeiting and reduce environmental impact. We will make banknotes available to citizens for as long as there is demand for them,” said Panetta.
CBDCs 2023: The development of central bank digital currencies worldwide
Projects for digital central bank currencies are currently being pursued in 114 countries worldwide, including the e-CNY pilot project in China or the “Cedar” project of the US Federal Reserve, but India, the United Arab Emirates, or Nigeria are also working on the introduction of a digital Currency worked, partly already launched.
For example, visitors to the Olympic Games in Beijing in February last year were already able to pay with the e-yuan. The People’s Bank of China is currently testing the e-yuan in the metropolis of Changshu and is striving to cover all payment options with the digital central bank currency as completely as possible.
The recently published “Market Research Outcome Report” on the digital euro states: “A digital euro would enable end-users of retail payment instruments to access and transfer central bank money in electronic form in electronic form. Each digital euro always becomes a central bank liability and enables it.” end-users to make and receive payments across the euro area in a similar way to how they are accustomed to using cash. Digital money issued by the central bank would be an anchor of monetary stability for the euro area, strengthening its monetary sovereignty and fostering innovation”.
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