The EU has been one of the top regions in the world with increasing interest in a digital currency for its people. Specifically, it has announced plans to launch a digital Euro that will serve all its participating countries.
In view of this, IBM, the global tech firm with one of the largest research facilities in the world, has identified five considerations needed to have a successful digital Euro.
Utilize existing infrastructure
The first suggestion given by IBM is that the digital Euro should be developed using already existing infrastructure. One of the implications is that the digital Euro can bear semblance with other forms of payment that have been in use in the region.
“We think that the initial acceptance of the digital euro will be very much determined by simplicity and similarity in usage and operations with other well-established payment methods,” IBM said.
IBM also noted that this approach aligns with the European Commission’s proposal to avoid slow adoption and minimize cost while supporting innovation.
A digital Euro that is built on privacy and usefulness for virtual worlds and tokenized economies should be the goal of Europe.
Allow third-party agents
IBM said that it’s important for the digital Euro to allow entry for intermediaries acting as third-party systems.
To ensure the success of the digital euro, it’s essential to engage a diverse range of intermediaries, including both FinTechs and traditional payment platforms.
In specificity, it mentioned that they should “utilize the PSD2(3) role model to its full extent, including third-party provider (TPP) roles.”
The advantage of this, similar to the previous suggestion, is that “the digital euro would benefit from solutions which are already in the market and would enable new solutions built within the same regulatory framework.”
Privacy and offline-based system
The third proposition by IBM is to have a strong privacy system that does not rely on online connectivity. Therefore, with or without a good internet connection, users should make payments seamlessly.
IBM said that this is also in line with the “legislative proposal of the European Commission” which includes a strong privacy for offline payments.
It added that enhanced privacy in cash-like transactions can boost adoption and quickly identify potential fraud like double-spending.
DLT and centralized governance
IBM’s fourth recommendation is that the EU should include a centralized governance system as part of the architecture for the digital Euro.
“The deployment of the digital euro system should be distributed, but governance can be centralized,” IBM said.
The advantage of DLTs is that it provides a foundation for interoperability with the tokenized economy and in combination with a zero-knowledge proof system, privacy is more assured.
With previous experience in the realm of DLTs, IBM stated that “future requirements to provide interoperability for cross-currency payments with other retail CBDCs add to the importance of DLT.”
Start small
Finally, IBM advised that the digital Euro project should be built in an incremental format. The payment system should start “with a minimum viable digital euro within a sandbox.”
The tech firm noted that this is important because of the complexity involved in building and testing such a system including the huge number of users in the Eurozone, their cultural differences, integration with existing payment infrastructures, security, privacy, and more.
Therefore, a Minimum Viable Product should be launched while adjustments and improvements are initiated on it to allow for more users over time.
Looking at the timeline, IBM suggested that the “releases could be rolled out in 6-month intervals to gradually augment functionality, add supported countries, user groups and increase transaction volumes as examples.”
The EU has been at the forefront of integrating its economy with the digital ecosystem. Some products being considered for regulations and implementation are crypto, stablecoins, and CBDCs.
With MiCA (Markets in Crypto Assets), a crypto regulatory framework, being approved, the EU is gearing up to meet the demands of digital payment systems for its citizens.
