The European Commission is to launch a consultation prior to proposing legislation that will lay out the legal framework for the ongoing development and potential issuance of a digital euro by the European Central Bank (ECB).

The legislation will complement the ongoing central bank digital currency (CBDC) project that the ECB officially launched in July 2021 with an initial two-year investigation phase before the launch of a development phase in 2023 “which could take three years”, the ECB has said.

The EC aims to launch legislative consultation on a digital euro “in the coming weeks” and table digital euro legislation “in early 2023”, according to a Politico report.

European Commissioner Mairead McGuinness reported on plans for digital payments sector legislation during the sixth Annual FinTech and Regulation Conference last week and said that the overall aim of the digital euro project “is to ensure that the euro remains fit for the digital era”.

“There are a number of key challenges and risks that we need to thoroughly assess before taking any decision,” she said during her keynote speech.

“At this stage there are more questions than answers: would a digital euro complement or substitute cash? Is there a risk of crowding out private payment solutions? And if so, how should we mitigate this potential risk? What would be the role of the private sector in all of this?

“So a very in-depth reflection is ongoing. The ECB and the European Commission services are — at a technical level — reviewing a broad range of legal and technical questions arising from the potential adoption of a digital euro.”

Estonia’s central bank began testing a blockchain-powered digital euro solution in July 2021 as part of the ECB’s two-year investigation programme.

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