ECB allocates EUR 1.2 billion for retail digital euro development

The European Central Bank has announced plans to allocate up to EUR 1.2 billion to contractors to develop features facilitating offline payments for a retail digital euro.

The ECB is looking for providers of various features such as risk management, information security, and a user application, with more than half of the budget dedicated to the offline payments service. 

As global economies explore the issuance of central bank digital currencies (CBDCs) to adapt to the digital era and compete with private cryptocurrencies, the 27-nation European Union is notably focused on preparations. The ECB has been exploring the possibility of a digital euro for the past few years, and in 2023, the EU proposed legislation for the digital currency, emphasising features such as outlawing interest and enabling offline payments from day one. 

While ECB officials stress that the exploration of a digital euro does not commit to its issuance, the recent call for providers suggests a potential commitment to delivering on promises made in legislative proposals according to coindesk.com. Alongside the call for applications, the ECB published an update on the development of a rulebook for the CBDC. 

While the budget of EUR 1.2 billion appears substantial, some industry experts view it as reasonable given the expectations set by the ECB. They also noted that more than half of the budget is allocated to potential providers of the offline component of the CBDC, signalling the seriousness of the endeavour and the need for expertise to address remaining questions.

Offline payments and CBDCs 

Enabling offline payments is recognised as a critical challenge in CBDC implementation. The ECB plans two digital euros for retail payments, with one exclusively designed for offline use. Experts envision a single app accommodating both versions but acknowledge the potential challenge of developing such a user-friendly product. 

The selection of service providers remains an open question, with the ECB having faced criticism in 2022 for choosing US tech giant Amazon to create an ecommerce prototype for the digital euro. Sources cited by coindesk.com suggest the possibility of the ECB opting for traditional finance players with a presence in Europe this time. 

These developments follow the ECB's shift of its digital euro project to a 'preparation phase' in October 2023, focusing on refining a rulebook and selecting providers. The decision to issue a digital euro awaits the finalisation of legislation in the European Parliament.