The digital euro project: the future of money in the digital age

Tuesday 25 April 2023 08:30 CET | Editor: Alin Popa | Interview

ECB's digital euro program director, Evelien Witlox, shares with The Paypers updates on digital euro issuance, design, and implementation. When will a digital euro be issued? Read on to find out.


The ECB started an investigation into the digital euro more than a year ago. What progress has been made so far?

Since the digital euro project was launched in 2021, we have been examining possible design options that would meet the needs of euro-area citizens, firms, and intermediaries like banks. At this stage, the Eurosystem is also looking at how could a digital euro be distributed and what impact it could have on the market and economy. 

Moreover, the ECB has also recently established the digital euro Rulebook Development Group, constituted by professionals from the private and public sectors, to ensure a harmonised and user-friendly solution that works everywhere in the euro area.

Nevertheless, the digital euro is not a stand-alone project confined to the payment domain but rather a European cross-policy initiative that also involves other institutions. For instance, the European Commission is currently preparing a legislative proposal on a digital euro, which will clearly impact its final design depending on the co-legislators’ decision. 

What is on ECB’s work agenda for 2023?

We are at the final stretch of the investigation phase, to be concluded in autumn. All efforts are now focused on finalising our work, which will feed into a holistic review that we are going to perform as a conclusion on the investigation phase. The final findings, including advice on potential digital euro issuance, design, and implementation, will be presented to the ECB’s Governing Council that will decide whether or not to launch the next phase of the project.

This decision, to take place in autumn 2023, will be distinct from the decision on a digital euro issuance that could be taken only once the legislative process, initiated by the European Commission, has concluded. 

In an Introductory statement, Fabio Panetta envisaged two options for using the digital euro: supervised intermediaries and a new digital euro app. What will these options look like?

To ensure that citizens could conveniently use the digital euro throughout the euro area, we are currently envisaging two different options. Firstly, supervised intermediaries, including banks, could simply integrate the digital euro within their existing apps, which their customers are already familiar with. Secondly, the Eurosystem considers the development of a separate digital euro app for citizens. The existence of this stand-alone app could offer users an additional choice and offer a solution for intermediaries that might not have the wish or capacity to develop access to digital euro services within their existing interfaces. 

Moreover, can you please elaborate on how supervised intermediaries will be compensated?

The Eurosystem is currently working on developing a compensation model that assumes a digital euro would be of free basic use for private individuals throughout the euro area. The Eurosystem has defined four key principles for a digital euro compensation model. This model will largely adapt the currently leading models in the market to the digital euro’s public good nature. It is envisaged that this model will offer network effects and generate economic incentives for acquirers, merchants, and issuers. All in all, the wide distribution of a digital euro could allow for more competition in the euro area with greater choice, to the benefit of citizens.

Same as with euro banknotes, the Eurosystem would bear its own costs related to digital euro settlement, processing, and scheme. Simultaneously, the Eurosystem aims to minimise additional investment costs for the private sector by re-using as much as possible existing infrastructures and standards.

The design of the compensation model will also depend on the final digital euro legal framework to be presented by the European Commission.

Can you please detail what advanced functionalities and value-added services can be attached to the digital euro?

In addition to the basic services, that all supervised intermediaries will equally offer to digital euro users, payment service providers may offer extra services to improve the end-user’s experience. For instance, these functionalities could include pre-authorisations or conditional payments. The digital euro will provide a platform for innovation, on which intermediaries can develop value-added services that benefit the clients that they serve.

When it comes to the hardware, people could pay either with mobile phones, physical cards, or possibly other devices like smartwatches. What about people that don’t own a smartphone/wearable, how will they be capable of paying?

A digital euro will be designed to be as inclusive as possible by taking on board those who cannot afford a credit card or who don’t have a bank account. Technologically, it will also be easy to use, so that those who have more difficulties with digital devices are not left behind. Therefore, it will not be necessary to own a smartphone to pay with digital euros, as users will also be able to make purchases with physical cards. 

You mentioned that privacy is a top priority for the design of a digital euro. What does it mean and how can this principle be embedded in the digital euro?

The Eurosystem aims to ensure the highest privacy standards for digital euro users in line with other public policy objectives, such as combating money laundering and the financing of terrorism.

Unlike private companies, the Eurosystem has no interest in seeing, storing, or sharing people’s personal payment data. Therefore, the Eurosystem would not access any of this information, which would only be accessible to intermediaries, e.g. banks, to ensure compliance with anti-money laundering and counter-terrorism financing requirements as well as other relevant European laws.

Overall, the final design of the digital euro will depend on the level of privacy European legislators deem appropriate. For instance, the Eurosystem is currently discussing with the European Commission possible ways to ensure greater privacy for lower-value payments that could be subject to simplified checks. 

Regarding Digital euro progress, what can we expect to happen by the end of 2023? What about in the next 5 years?

Depending on the ECB’s Governing Council decision in autumn, we could already be in the next phase of the digital euro project by the end of the year. If that were the case, the Eurosystem would dedicate the next years to further prepare for a potential issuance of a digital euro. 

The decision of issuance would only come afterwards and once the legal framework is concluded. If a digital euro were to be issued, it could be ready by this decade.

About Evelien Witlox

Evelien Witlox is the ECB’s digital euro program director. She has extensive managerial experience in the payments industry, including as ING Global Head of Payments and General Director of Products and Innovation at equensWorldline. She has been a board member of both the European Payment Council and the European Automated Clearing House Association. 


About the ECB

The ECB is the central bank of the European Union countries which use the euro. Our main task is to maintain price stability. We do this by making sure that inflation remains low, stable, and predictable. In this way, we seek to help you plan your saving and spending.

Description extracted from the official ECB webpage

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Keywords: digital currency, central bank, CBDC, mobile banking, cybersecurity
Categories: DeFi & Crypto & Web3
Companies: European Central Bank
Countries: Europe
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