Last week, the European Central Bank (ECB) published the fourth status report on the digital euro, describing a proposed staggered roll-out of the central bank digital currency (CBDC) and presenting the findings of a market research study with potential external vendors, among other things.
The report also outlined the principles for a digital euro compensation model and explained the ongoing work on design and distribution options. The next steps involve a comprehensive review of this past year’s investigation phase and a decision on whether to move forward with a subsequent project development phase.
Phased CBDC roll-out
In its initial release, the digital euro would only be available for person-to-person (P2P) and e-commerce payments to “generate network effects and foster wider acceptance,” according to the report. Research has shown that P2P payments are highly regarded among European users and are also technically easy to implement, whereas the e-commerce use case would allow consumers to use central bank money for their online purchases.
A second release would roll out point-of-sale payments at retail stores to give merchants enough time to adapt their payment terminals and physical infrastructure. This phased approach should help mitigate execution risks and minimize delays (which we have seen in other countries, such as China), as well as allow the ECB to identify and address challenges more gradually.
Research on European providers
The latest status report also shows the results of a market research study launched in January 2023 that was aimed at gathering data from technology suppliers on their ability to provide technology for a CBDC. The 29 responses indicated that there is “a sufficiently large pool of European providers that are ready to develop digital euro solutions,” with a wide range of architectural and technological design options across twelve technical components. These include settlement, offline features, and fraud detection and prevention.
Additional updates and next steps
Almost two years after the launch of the investigation phase, the ECB appears to have decided on various general principles for the digital euro. For example, the compensation model will broadly follow Director Fabio Panetta’s March proposal, which include free basic use by private individuals and economic incentives for distributing payment service providers (PSPs).
The report also provides additional updates on portability, fraud detection and prevention, and digital financial inclusion, broadly in line with the principles laid out on the previous reports from September 2022, December 2022, and April 2023.
Meanwhile, a digital euro rulebook with relevant stakeholders is still in the making, with no expected timeline for a draft publication.
After the summer, the Governing Council will review its investigation phase and decide whether to move on to a project development/testing phase. However, this does not constitute a final launch decision.