Focus Area:
Person-to-person — A payment between two people
X2G — G2X payments — Payments to the government (X2G, e.g., taxes) and by the government (G2X, e.g., allowances and subsidies)
Consumer-to-business — A payment for goods or services purchased in a physical store (point-of-sale payment) or online via e-commerce
Machine initiated payments — A fully automated payment initiated by a device and/or software based on predetermined conditions
Business initiated payments — A payment from a firm to another firm (B2B) or to an individual (B2P, e.g., wages)
Overview:
The European Central Bank (ECB) and the euro area national central banks launched the investigation phase of the digital euro project in October 2021. The investigation phase aims to address key issues relating to the design and distribution of a digital euro. Since then several studies have been performed and reports have been published in public.
A digital euro would be an electronic means of payment for retail payments, issued by the central bank and accessible to everyone in the euro area. Instead of replacing physical cash, it would work alongside it, enabling the use of central bank money in a digital format as well.
During the period between July 2022 and February 2023, the European Central Bank (ECB) carried out a prototyping exercise to assess the technical implementation and integration of design options for the digital euro within the current European payments infrastructure.
Motivations:
The working paper from ECB states that the use of CBDC for retail payments is the primary use-case for the development of a digital euro.
Institutions involved:
European Parliament
EU council
European Commission
Euro Retail Payments Board
Technology partners:
- Person-to-person offline payments — Worldline
- Person-to-person online payments — CaixaBank
- Point-of-sale payments initiated by the payer — EPI
- Point-of-sale payments initiated by the payee — Nexi
- E-commerce payments — Amazon.
Design considerations:
Exploration of a peer-to-peer validated solution for offline payments and online payments with no third party involvement is being considered for the first digital euro release.
As part of the investigation phase, various options to address the trade-off between retaining a high degree of privacy and other important public policy objectives have been investigated.
Centralised vs decentralised options were explored as part of the investigation phase.
Technical Solution:
The exercise included the development of a single back-end prototype, a settlement system designed by the Eurosystem and five different front-end user interfaces.
During the prototyping exercise, an analysis was conducted on the back-end prototype to ensure privacy protection and seamless integration with the existing payment infrastructure. The back-end prototype demonstrated the ability to support various transaction types while safeguarding users’ privacy by not exposing their payment patterns or account balances to the Eurosystem.
Simultaneously, market participants successfully implemented and tested five payment scenarios encompassing person-to-person payments, in-store transactions, and online payments. The findings also indicated that, through independent designs, a digital euro could theoretically function both online and offline, thereby enhancing the resilience of the digital euro ecosystem.
It’s important to note that the specific choices made for these prototypes will not impact any decisions related to the final design of the digital euro in terms of technology or functionality.
Conclusion:
In autumn 2023, the Governing Council will assess the results of the investigation phase and make a decision on whether to proceed with the subsequent project phase. This phase would focus on developing and testing suitable technical solutions and business arrangements.
The prototyping tests demonstrated the feasibility of seamless integration with the current payment infrastructure, while still allowing room for the incorporation of innovative features and technologies. Additionally, the findings affirmed that a digital euro could, in theory, function both online and offline through independent designs. This characteristic would enhance the overall resilience of the digital euro system.
Source:
https://www.ecb.europa.eu/home/search/html/central_bank_digital_currencies_cbdc.en.html