The European Central Bank (ECB) has published the latest status report on digital euro work, following a previous update in September. A future retail central bank digital currency (CBDC) will be intermediated so that the central bank doesn’t have to manage consumer relationships directly. The report highlights the split of roles between the ‘supervised intermediaries’ or commercial banks and the Eurosystem’s central banks.
The Governing Council of the European Union will make a final decision on whether to issue a digital euro late next year.
Split of roles
Like physical cash, the digital euro will be a direct liability of the Eurosystem central banks. Also similarly to cash, banks will distribute the digital euro and perform anti-money laundering checks.
However, unlike cash, the Eurosystem central banks will be entirely responsible for the settlement of all online transactions. That includes verifying that the payer has sufficient funds in their wallet and recording the money transfer.
Even though the central bank performs the settlement, it won’t have access to customer details such as their total holdings or payment patterns.
The ECB stated that for the settlement it might use distributed ledger technology (DLT), conventional technology or a combination. It depends on the functionality.
The commercial banks will validate client payments (pre-settlement) and have access to the golden copy of the transactions performed by their clients (post-settlement).
All consumer-facing activities are the responsibility of the intermediaries, such as helping users to fund and defund their digital euro wallets. This will also involve automated movements between bank accounts and digital euros. This will happen if the client’s digital euro holdings exceed the allowed maximum limit or if the client initiates a payment with insufficient funds in their wallet. In the latter case, the user might choose to abandon the payment instead.
Banks have to support this funding and defunding around the clock.
Other ECB work
The ECB is planning to develop a rulebook that will govern how intermediaries are involved with the digital euro. Christian Schäfer was appointed earlier this month to manage the rulebook scheme.
As previously reported, the bank is working with five providers to see how user interface prototypes could integrate with its backend.
It also shared details about the current token-based design with which these providers have integrated.
Plus, the ECB plans to canvas technology providers early in the new year to see what solutions are available.