The European Central Bank (ECB) has joined the ranks of central banks around the world who are getting serious about issuing digital currencies. On 14 July 2021, the Governing Council of the European Central Bank announced plans to launch the investigation phase of a digital euro project.

Key points brought up during the announcement include the following:

  • The investigation phase of digital euro project will last 24 months.
  • The design will be based on users’ preferences and technical advice from merchants and intermediaries.
  • A digital euro must meet the needs of Europeans while also helping to prevent illicit activities and avoiding a negative impact on financial stability and monetary policy.
  • The investigation phase will focus on a possible functional design that is based on users’ needs. It will involve focus groups, prototyping and conceptual work. The investigation phase will examine the use cases that a digital euro should be a riskless, accessible, and efficient form of digital central bank money.

ECB’s Positive Preliminary Experiments

The ECB and the euro area national central banks recently concluded preliminary experiments on the digital euro, and the results of that phase were encouraging. The 9 months of experiments involved:

  • Participants from academia and the private sector.
  • Focus on four areas: the digital euro ledger; privacy and anti-money laundering; limits on digital euro in circulation; and end-user access while not connected to the internet and facilitating inclusiveness with appropriate devices.

No technical obstacles were found during a preliminary experimentation phase for the digital euro.

Digital Euro, Cash, and Cryptocurrency

A digital euro would provide an alternative to cash but would not replace it. As the Associated Press pointed out when reporting on the ECB’s announcement, digital currencies differ from cryptocurrencies such as Bitcoin because central bank digital currencies would be legal tender and thus accepted for any transaction, and their value would remain stable.

Sources:

European Central Bank

Associated Press

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