DIGITAL EURO, SEVERAL STEPS FORWARD

Europe is working on the design of a central bank digital euro (CBDC). The main motivation is to maintain the role of central bank money in the economy, even if it is ‘threatened by the digital revolution’, according to French Central Bank President Galhau.

The recommendations of the Bank for International Settlements, which has long been calling on states to equip themselves with a digital state currency, have been seized upon in Europe, especially by France, which is currently the most advanced European country in digital currency design.

From March 2020 to the end of last year, the French Central Bank conducted nine experiments that helped demonstrate how CBDCs could be used for wholesale payments. These involved cross-border and cross-currency payments as well as the settlement of securities. A year later, the French Central Bank has stated that the first phase of the digital euro experiments has been completed and that the second will begin this year.

The European Central Bank (ECB) will work with five companies to develop potential user interfaces for the digital euro.

The objective of this prototyping exercise is to test the ability to integrate the technology behind the digital euro with the prototypes developed by the companies.
Simulated transactions will be initiated using the front-end prototypes developed by the five companies and processed through the Eurosystem’s interface and back-end infrastructure. There are no plans to re-use the prototypes in subsequent phases of the digital euro project.

Together with the ECB team, the selected companies will each focus on a specific use case of the digital euro:

  • online peer-to-peer payments – CaixaBank;
  • offline peer-to-peer payments – Worldline;
  • point-of-sale payments initiated by the payer – EPI;
  • point-of-sale payments arranged by the payee – Nexi;
  • e-commerce payments – Amazon.

The companies were chosen from 54 front-end providers. Their selection followed the April 2022 call for expressions of interest to participate in the prototyping exercise.
All 54 companies meet a set of ‘core capabilities’ set out in the invitation, while the five selected suppliers best meet the ‘specific capabilities’ required for the assigned use case. The ECB appreciates the wide interest shown in the prototyping exercise.

In addition to France, countries such as Italy, Germany, the Netherlands and Spain are at the forefront of the introduction of the European digital single currency.

According to the German newspaper ‘Handelsblatt’,

‘The digital euro could play a decisive role in strengthening the strategic autonomy of the European Union and in promoting innovation in the financial sector’, and ‘behind the drive of the five Eurozone countries, there is the fear that without a European offer, other digital currencies could gain importance in Europe’.

This phase of the investigation is expected to be concluded in the first quarter of 2023 with the ECB publishing its findings.