Brussels proposes the creation of a digital euro, a digital currency backed by the European Central Bank (ECB).
The initiative seeks to offer consumers an electronic payment option at a European level, both online and offline.
Citizens could store up to 3,000 euros in secure digital wallets, and it is ensured that the privacy of personal data will be protected.
The proposal must receive the support of the Member States of the EU and the European Parliament, with the aim of launching the digital euro in 2027 , after the approval of the ECB. China, Jamaica, and the Bahamas already have their own digital currencies, while the United States is in the process of developing a digital dollar.
The European Commission has proposed a legal framework for the future digital euro, which would complement cash rather than replace it. The objective is to offer citizens and companies an additional digital, secure and economical payment option. The digital euro would work like a digital wallet, allowing online and offline payments, and would include quantity limits to prevent the massive withdrawal of bank deposits. EU banks and service providers would distribute the digital euro, and financial inclusion would be promoted by allowing people to open accounts at post offices or other public entities. Businesses would be obliged to accept the digital euro, with justified exceptions. In addition, the widespread acceptance of cash and sufficient access to it would be ensured. The proposal must be adopted by the European Parliament and the Council, and the European Central Bank would decide if and when to issue the digital euro.
During the investigation phase, the cases and tests carried out to date have been published in this medium . The aim of these tests was to assess the technological feasibility of the design options identified in the digital euro report. The experiments were organized into four work streams and addressed different design features. These areas of work focused on the digital euro ledger, privacy and anti-money laundering, limits on the circulation of the digital euro and end-user access:
- Stream 1 focused on an account-based system and tested the issuance, redemption and distribution of the digital euro using the existing infrastructure of the TARGET Instant Payment Settlement (TIPS) system. The scalability of the TIPS system was investigated as a possible infrastructure for the digital euro.
- Stream 2 focused on how to combine a centralized ledger with one or more decentralized platforms based on distributed ledger technology (DLT). Two alternative approaches to settling transactions between ledgers were tested and demonstrated. We sought to understand how different features can be added to the digital euro, such as programmability and privacy, by combining centralized and decentralized technologies.
- Stream 3 evaluated a solution based on a blockchain platform and fixed value tokens (“digital currencies”) for the issuance, redemption and distribution of the digital euro. The potential scalability of this blockchain platform and digital banknotes as a possible infrastructure for the digital euro were explored. The possibility of combining this solution with existing digital identity and digital signature components was also explored.
- Stream 4 focused on offline payment solutions using hardware-based bearer instruments, which could facilitate the use of the digital euro as a payment instrument. Six companies were selected to carry out proofs of concept and generate research reports that will address questions about the design of the digital euro and hardware-based carrier instruments.
In summary, these experiments made it possible to evaluate different technical and design aspects related to the digital euro and to gain a broader understanding of its feasibility and potential applications. These efforts seek to lay the foundations for the possible implementation of the digital euro in the future. The schedule for the implementation project of the New Digital Euro is presented below:
The Commission proposal seeks that the digital euro has the same validity as cash. To achieve this, two legal frameworks have been proposed. One refers to the digital euro itself, which will be freely accessible to everyone and can be used as a payment method in any establishment, similar to card transactions. The second framework refers to the euro in cash, ensuring that it continues to be accepted everywhere and guaranteeing the existence of ATMs.
Although the digital euro will have no limits in terms of its functions, a maximum possession limit per person will be established to prevent money from escaping from the banks. Although an official figure has not been specified, previous analyzes by the European Central Bank suggest a limit of 3,000 digital euros per person.
Banks will play an important role in accessing the digital euro, as they will be obliged to provide it. However, their role will be reduced, since they will not be necessary for the existence of the digital euro. The idea is that citizens can access digital wallets with euros through post offices and other public entities for free, similar to buying a prepaid card.
Unlike bank deposits, the digital euro will not earn interest. This implies that there will be no profitability for having digital euros. The idea is that the digital euro is used mainly for daily payments or small transactions, while for savings or larger purchases, banks are used and the traditional euro is used.
To guarantee privacy, offline payments with the digital euro will be allowed , which means that transactions can be made without the need for a mobile phone or internet connection . According to the European Commission, the objective is that payments with the digital euro involve less personal data than card payments, and the aim is to avoid the monitoring of transactions. The specific technical solutions to achieve this are still being tested in different pilot tests.
If you want to know more about this news, click on the following link: https://www.ecb.europa.eu/press/pr/date/2023/html/ecb.pr230628~e76738d851.es.html
