ECB Unveils First Progress Report on Digital Euro

The European Central Bank (ECB) has released its inaugural progress report on the digital euro preparation phase, marking a significant milestone in the development of a potential central bank digital currency (CBDC) for the Eurozone. The report, published on June 24, 2024, outlines key advancements in design aspects and future steps for the project, which began on November 1, 2023.

Central to the ECB’s efforts is the focus on privacy and data protection. The design includes an offline functionality that aims to offer users a cash-like level of privacy for in-person transactions. For online transactions, the ECB promises enhanced privacy standards surpassing current digital payment solutions, employing state-of-the-art measures such as pseudonymization, hashing, and data encryption.

The report emphasizes that the Eurosystem would not be able to directly link digital euro transactions to specific users. Payment service providers would only access personal data required for compliance with EU law, such as anti-money laundering regulations. The ECB, as the issuer and infrastructure provider, will be supervised by independent data protection authorities to ensure compliance with EU data protection regulations.

Another key focus is the development of offline functionality, allowing users to make payments without an internet connection after pre-funding their digital euro account. The ECB is investigating existing technical tools that could enable direct settlement of offline transactions between users’ devices, such as mobile phones or payment cards.

The report also addresses the critical issue of digital euro holding limits, aimed at preserving financial stability and monetary policy transmission. The ECB has initiated work on a calibration methodology to define these limits, involving a comprehensive monetary and economic assessment. A newly created workstream, including experts from national central banks and competent authorities, is identifying factors that could influence the calibration.

In terms of technical progress, the digital euro Rulebook Development Group has completed an interim review of the first draft rulebook, setting out standardized rules and procedures for digital euro payments across the Eurozone. An updated version is expected by the end of 2024.

The ECB has also issued five calls for applications to establish framework agreements with external providers for digital euro components and related services. This process will help determine the final technical details for designing the digital currency.

Throughout the preparation phase, the ECB continues to provide technical expertise to support ongoing legislative discussions. This includes input on analyzing dynamics in the euro retail payments market, feasibility studies on multiple digital euro accounts per user, and technical work on a highly inclusive and accessible digital euro app.

Piero Cipollone, Executive Board member and chair of the High-Level Task Force on a digital euro, emphasized the project’s collaborative nature: “The digital euro is a common European endeavour. As such, we will continue engaging with all stakeholders, including the European public, to ensure that it is successful and benefits us all.”

The ECB’s Governing Council will only decide on the possible issuance of a digital euro once the relevant legislation has been adopted, underscoring the importance of a robust legal framework for the currency’s function. As the project progresses, it continues to balance technological innovation with privacy concerns and financial stability considerations, setting a potential benchmark for CBDC development globally.