The European Central Bank (ECB) has officially launched its digital euro project with a two-year investigation into key issues regarding the design, distribution and use of a central bank digital currency (CBDC).
This will involve “focus groups, prototyping and conceptual work” and examine a possible functional design based on users’ needs, potential use cases for a digital euro, the changes to the European Union’s legislative framework a CBDC would require and the possible impact on the market and the overall economy”.
During the investigation phase the ECB’s “technical work on the digital euro with the European Commission will also be intensified,” the bank says.
The ECB first set out a case for a digital euro as “a riskless, accessible and efficient form” of CBDC in a report published in October 2020, when it also began conducting experimental work with national central banks across the existing Eurosystem that will also inform the investigation phase.
“Experiments were conducted in the four following areas: the digital euro ledger; privacy and anti-money laundering; limits on digital euro in circulation; end-user access while not connected to the internet and facilitating inclusiveness with appropriate devices. No major technical obstacles were identified to any of the assessed design options,” the ECB says.
“Both the Eurosystem Target Instant Payment Settlement (TIPS) and alternatives such as blockchain were proven capable of processing more than 40,000 transactions per second. The experiments also suggested that architectures combining centralised and decentralised elements are possible.
“According to these experiments, a digital euro core infrastructure would be environmentally friendly: for the architectures that were tested, the power used to run tens of thousands of transactions per second is negligible compared with the energy consumption of crypto-assets such as bitcoin.”
The two-year investigation phase “will not prejudge any future decision on the possible issuance of a digital euro, which will come only later. In any event, a digital euro would complement cash, not replace it,” the ECB adds.