The European Central Bank (ECB) began investigating the potential of introducing the digital euro over a year ago. Since then, the work on this project has been actively progressing, with the ECB holding multiple discussions about its key design options with the Committee on Economic and Monetary Affairs of the European Parliament over the course of 2022.
On 23 January 2023, Fabio Panetta, a Member of the Executive Board of the ECB, shared the key developments related to this initiative. Below, you’ll find an overview of the highlights of his statement that shed light on the current stage of the digital euro’s evolution and give an idea of what the eurozone’s payment landscape may look like after its implementation.
For instance, in Finland and the Netherlands, cash is used only in one-fifth of cases. However, people there still tend to prefer to have public money available as a payment method. Given this state of affairs, the priority of the digital euro initiative is to preserve the role of central bank money in retail payments while providing an additional option for payments with public money.
Panetta claims that this innovative project will complement the existing ecosystem and effectively cater to the growing trend for electronic transactions by making public money available in digital form without trying to replace other electronic payment methods or cash.
All in all, the digital euro’s availability alongside cash is expected to bring a variety of benefits to the eurozone, namely:
As you can see, this initiative is likely to take Europe’s payment landscape to a whole new level. But how are the authorities planning to facilitate the implementation of such a large-scale project?
Due to the fact that the digital euro is intended to be easily accessible throughout the eurozone, just like cash is nowadays, it has been agreed that its introduction requires the creation of a unified regulatory scheme.
This means that the EU authorities would need to develop a framework of universal rules, standards, and procedures, with the goal of enabling intermediaries to develop products and services built on the digital euro. The said scheme would also allow citizens to access certain core services, regardless of which intermediaries their accounts or wallets are tied to.
It is planned that intermediaries compliant with the regulatory scheme will be able to integrate the digital euro into their proprietary platforms so that users could conveniently access it through familiar interfaces.
Additionally, the Eurosystem is considering creating a new digital euro app, which would feature only the basic payment functionalities facilitated by supervised intermediaries. This application would help to ensure the digital euro’s across all jurisdictions within the euro area.
The app’s first releases are likely to focus on offering online and contactless transactions, including those conducted through QR codes. As the tech solution evolves, other payment forms are expected to become available. As for the hardware part, users will have the option to pay using their mobile phones, physical cards, and possibly other devices, such as smartwatches.
In his official statement, Panetta also mentioned the work agenda for 2023 in the context of the digital euro initiative. He stated that the ECB and the Committee will proceed with the investigation phase of the project, gathering as much data, insights, and authoritative opinions as possible.
This stage will last until autumn and, once it’s complete, the ECB Governing Council will decide whether it will continue to the realization phase. The shift to the next phase, however, wouldn’t mean issuing the digital euro but would rather entail the development and testing of the technical solutions and business agreements necessary to eventually facilitate its potential distribution.
The executive board member also claimed that the ECB is in the process of analyzing the possible compensation model for the digital euro in collaboration with the European Commission. At the same time, they are actively reviewing design variants to come up with a high-level result by spring.
Finally, Panetta confirmed that the EU payment industry authorities are working together on finalizing the prototyping work and collecting input from market players to get a broad overview of the potential digital euro components and services.
Given the enthusiasm from all parties involved in the payment industry and the increasing interest of relevant stakeholders, this project is highly likely to be finalized and launched. What’s more, this can happen sooner than we expect - according to Panetta’s forecast, the world could see the introduction of the digital euro already in 2026.