The European Central Bank is among other global institutions researching the possible implementation of the digital euro, a Central Bank Digital Currency (CBDC). The bank started investigations on a possible CBDC in October 2021 and is yet to roll out a unified design or complete framework for a product.
Digital euro is an example of a central bank digital currency designed by the European Central Bank. Central Bank Digital Currencies are digital currencies created, issued, and managed by central banks. They are the digital twin of fiat currencies, which makes it easier for users to interact digitally. The advent and usage of cryptocurrencies have made the release of CBDCs more eminent for CBs.
While further discussions have been on, the ECB released its second report on the digital euro, illustrating that a possible product will be out sooner. According to the bank,
“the prototyping exercise is expected to be completed in the first quarter of 2023 when the ECB will also publish its findings.”
Workings of digital euro
In this report, the European Bank explained that a proposal for a supervised intermediary system is used for the workings of the digital euro and not a direct central bank approach.
This means that the supervised intermediary would perform roles including “offering user-facing services, such as opening accounts or wallets, payment instruments and onboarding and offboarding, encompassing know-your-customer and anti-money laundering checks.”
On the other hand, settlement processes such as recording and verification roles will be varied by the ECB. This is because the asset in question, the digital euro, is the bank’s liability.
For privacy matters, the proposal of the project suggests that while supervised intermediaries can access customers’ records, the “Eurosystem” will function so that account balance and spending details of holders cannot be determined.
Funding and defunding should be optional
The ECB noted that users of the proposed digital euro would have the ability to fund their accounts and defund their accounts with the CBDC. This process, according to the report, can be done manually or digitally.
“Supervised intermediaries would offer manual funding and defunding options in both their online and offline digital euro solutions,” ECB said. It added that users could also swap between digital euro and other provided currencies at will without many restrictions.
Also, the recommendation from the research says that there should be no limit for users as well as merchants who want to play in the digital euro space in terms of nationality or region.
The ECB also affirmed that more collaboration would continue with the European Commission, the European Parliament, and Member States as well as market participants until a solution with a unified design is achieved.
So far, Nigeria and India have created and legalized a CBDC. But the adoption from the citizens is very low.
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