ECB Reports Progress on Digital Euro, Highlights Design and Policy Challenges
The European Central Bank (ECB) has released its second progress report on the digital euro, marking significant advancements in its preparation phase while addressing critical debates surrounding its implementation. The digital euro, a potential central bank digital currency (CBDC) for the eurozone, aims to modernize payment systems, enhance competition, and preserve monetary sovereignty in the digital age.
Central to the ECB’s progress is the ongoing development of the Digital Euro Scheme Rulebook. Updated after extensive feedback from industry stakeholders, the rulebook establishes uniform standards for digital euro transactions across the euro area. Minimum user experience standards and a comprehensive risk management framework have been added to ensure inclusivity and security.
Engagement with diverse stakeholders remains a priority. The ECB has collaborated with merchants, fintech companies, payment service providers (PSPs), and academic institutions to foster innovation. Conditional payments — transactions triggered by predefined conditions — are a focal point, with testing and experimentation results expected in mid-2025.
Recognizing the importance of user-centric design, the ECB has initiated research to capture the preferences of different demographics, including small merchants and vulnerable groups. Surveys and interviews are underway, with findings slated for publication by mid-2025. These insights aim to inform decisions about features like offline functionality and privacy enhancements, ensuring the digital euro aligns with user expectations.
One of the most debated aspects of the digital euro design is the imposition of holding limits to prevent its use as a store of value, which could destabilize the banking sector. Consumer groups advocate for higher limits, citing usability and financial inclusion benefits, while banking institutions favor lower caps to mitigate deposit outflows. The ECB is exploring a “reverse waterfall” mechanism, which would automatically transfer excess digital euros back to linked bank accounts, though some stakeholders have raised concerns about its complexity and potential impact on privacy.
The ECB has concluded the application phase for selecting providers of digital euro infrastructure, with outcomes expected in 2025. Meanwhile, collaboration with national central banks continues on calibrating holding limits and refining offline payment solutions. Discussions with payment terminal manufacturers are underway to ensure seamless integration.
On the legislative front, the ECB is actively supporting the development of a regulatory framework for the digital euro. Recent political transitions in the European Union have resumed legislative discussions, with the ECB maintaining technical engagement to align its initiatives with evolving policy requirements.
As the ECB approaches the halfway point of its two-year preparation phase, its Governing Council remains on track to decide on the potential issuance of the digital euro by late 2025. Upcoming milestones include finalizing the rulebook, expanding user research, and continuing dialogue with industry and legislative bodies.
