Euro 2021: The European Central Bank Launches Investigation Phase for a Digital Euro

The European Central Bank (ECB) has initiated a 24-month investigation phase for a digital euro, a move potentially impacting Euro 2021 and beyond. This decision follows extensive analysis, public consultations, and promising experimental results. The primary goal is to ensure Europeans continue to have access to secure central bank money in an increasingly digital world.

The investigation will focus on design and distribution, addressing crucial aspects like user needs, illicit activity prevention, and maintaining financial stability. While not guaranteeing future issuance, a digital euro would complement, not replace, physical cash. The ECB aims to involve the European Parliament, other decision-makers, citizens, merchants, and the payment industry in this process.

User needs will be central to the design process, utilizing focus groups, prototypes, and conceptual work. Key objectives include providing a risk-free, accessible, and efficient form of digital central bank money. The investigation will also examine potential necessary changes to the EU legislative framework, to be discussed and decided by European co-legislators. Collaboration with the European Commission on the technical aspects of the digital euro will also intensify.

The project will assess the potential impact of a digital euro on the market, focusing on privacy protection and risk mitigation for citizens, intermediaries, and the overall economy. A business model for supervised intermediaries within the digital euro ecosystem will also be defined. A market advisory group will gather input from prospective users and distributors, with discussions also taking place within the Euro Retail Payments Board. This comprehensive approach aims to ensure a well-rounded and impactful outcome for the digital euro.

The investigation phase will leverage the experimental work conducted by the ECB and national central banks over the past nine months, involving academic and private sector participants.

Experiments focused on four key areas: the digital euro ledger; privacy and anti-money laundering measures; limits on circulation; and offline access and inclusivity. These experiments revealed no significant technical obstacles to the assessed design options. Furthermore, both the Eurosystem TARGET Instant Payment Settlement (TIPS) and blockchain alternatives demonstrated the capacity to process over 40,000 transactions per second, suggesting the feasibility of combining centralized and decentralized elements.

Importantly, the experiments indicated that a digital euro core infrastructure would be environmentally friendly. The energy consumption for processing tens of thousands of transactions per second was negligible compared to crypto-assets like Bitcoin. These findings provide valuable insights for the upcoming investigation phase.

The investigation builds upon previous experimentation, covering areas like ledger technology, privacy, and transaction volume. Systems like TIPS and blockchain proved capable of handling high transaction volumes.

The environmental impact was also considered. Initial findings suggest a digital euro infrastructure would be significantly more energy-efficient than cryptocurrencies like Bitcoin. This is a crucial factor in ensuring the long-term sustainability of any new digital currency system.