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European Central Bank Advances to Next Steps in CBDC Project’s Preparation Phase
- The ECB’s Governing Council revealed it will start preparation phase following a two-year investigation phase on a digital Euro.
- No final decision on a digital Euro implementation has been made.
- Significant concerns around programmability and privacy remain as roadblocks to adoption.
The European Central Bank (ECB) has announced its progression to the preparation phase of the digital euro project, following the conclusion of the investigation phase initiated in October 2021. This investigation sought to identify potential designs and distribution strategies for a digital euro.
Digital Euro Could Function as A Digital Cash Equivalent
The results of this investigation, as outlined in a recently released report, indicate the ECB’s intention for a digital euro that would function as a digital cash equivalent. This form of currency would be accessible for digital transactions across the euro area.
It aims to provide an online and offline currency that would ensure maximum privacy and permit users to execute instantaneous payments in central bank money. The digital euro is set to be unique, offering features not currently available in any other digital payment tool.
Preparation Phase to Last Two Years
Scheduled to begin on November 1, 2023, the two-year preparation phase will involve finalising the rulebook for the digital euro, selecting service providers for the platform’s development, and conducting extensive tests. The ECB plans to regularly consult the public and relevant stakeholders throughout this period. Following these two years, further assessments will determine the next steps in the digital euro’s development.
Decision on Digital Euro Still Outstanding
However, this move does not signify an official decision to launch a digital euro. This decision will only be considered after the European Union’s legislative proceedings are completed.
Christine Lagarde, the ECB President, emphasised the need to prepare currencies for the future, imagining a digital euro as a free-to-use digital cash version. This digital currency would exist alongside physical cash and would prioritise user data protection, ensuring that personal payment data remains anonymous.
Crypto Community is Not Convinced
As countries worldwide explore CBDCs, the crypto community has largely reacted with scepticism. Users on X called a digital Euro a bad idea and suggested the use of Bitcoin (BTC) instead.
Many critics express concerns about the influence central banks might exert and the programmability of a CBDC. But some argue that as long as Cash, Bitcoin and other cryptocurrencies exist CBDCs will not serve any dystopian purpose.
James Wallis, Ripple’s Vice President, stated that central banks and the private sector should advocate for CBDC adoption by guaranteeing a user-friendly experience, enhanced security, and financial inclusion.
Interoperability, clear regulations, and opportunities for innovation and partnerships are also crucial for its widespread acceptance, he said.
He added, “For a digital currency to have any utility to people and businesses, it needs to coexist and interact with other payment schemes in that domestic market.”
Author
Aaron Feuerstein
Aaron Feuerstein is a freelance writer based in Melbourne. His focus is on decentralised finance and the regulatory space surrounding blockchain. He holds a Master's in Accounting. When he is not studying the latest legal case, he enjoys his time as a modest but eager hobby cook.
