After the two-year "investigation phase" that has now concluded, the European Central Bank (ECB) is commencing preparations for the digital Euro. In this stage, the framework for a digital central bank currency (CBDC) is being finalized, and discussions are being held with potential providers.
The transition to the next phase for the digital Euro was announced by the ECB in a blog post. This decision follows the conclusion of the investigation phase initiated by the Eurosystem in October 2021. In a 43-page report, the central bank summarizes the findings of this testing period and recommends a digital Euro that would be generally accessible to EU citizens (Retail CBDC). The preparatory phase, initiated on November 1st, is also expected to last two years and lay the foundation for the introduction of a digital Euro.
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Digital Euro: The alternative to cash
The consideration of a digital Euro is driven by the rapidly evolving digitization of the European economy. While the use of cash is steadily decreasing, online purchases and digital payments are gaining importance. Therefore, the ECB deems it necessary to offer a secure and universally accessible payment option in the form of a digital Euro. This digital central bank currency (CBDC) would be a public good for the EU area, ensuring that people in the Eurozone can access a public means of payment at any time.
The benefits of a digital Euro would be extensive, according to the ECB. From a business perspective, a CBDC would streamline payment processes, reduce costs, and expand customer reach. Additionally, a digital Euro would strengthen Europe's strategic autonomy. According to the ECB, a CBDC could minimize dependence on private external providers, promote competition in the payments sector, and enhance financial inclusivity while preserving privacy. Ultimately, a digital Euro is seen as a logical step in the development of the European currency.
"We must prepare our currency for the future. We envision a digital Euro as a digital form of cash that can be used for all digital payments free of charge and meets the highest privacy standards. It would coexist with physical cash, which will always be available and leave no one behind." - Christine Lagarde, President of the ECB
The ECB has not made a final decision
According to the central bank's statement, the digital Euro would prioritize data protection. The Eurosystem would not have the ability to access users' personal data or link payment information to individuals. The digital Euro would also provide a level of data privacy similar to cash for offline payments. However, this goal must be balanced with efforts to combat money laundering and terrorist financing (AML/CFT) as well as the prevention of tax evasion. The ECB, however, leaves it to the EU legislator to find a balance between these partially antagonistic goals.
Despite these clear statements regarding the benefits of a digital Euro, the ECB has not yet made a decision on issuing a CBDC. This decision will only be considered by the ECB's governing council once the legislative process in the European Union is completed. Nevertheless, the upcoming preparatory phase includes finalizing a regulatory framework and selecting providers who could develop a digital Euro platform and infrastructure. It appears that the ECB has already made its decision. This contrasts with the approach taken by Switzerland, as explained by a spokesperson from the Swiss National Bank (SNB) in response to a request from CVJ.CH.
"Various central banks are examining the benefits and feasibility of digital central bank money for the general population (retail CBDC). At the current stage of analysis, the SNB sees no clear advantages of a retail CBDC compared to the existing system. Cashless payments in Switzerland are already reliable, secure, and efficient. Furthermore, the system is continuously improving, and nearly the entire Swiss population now has good access to financial services. Therefore, providing digital central bank money to all households and businesses would likely offer few advantages." - Spokesperson, Swiss National Bank (SNB)
