The European Central Bank’s (ECB) latest progress report has outlined that once its two-year investigation into central bank digital currencies (CBDCs) is over in October 2023, leaders will decide whether or not to issue its own CBDC; the digital euro.
The progress report unveiled plans to build a potential rulebook on the digital euro is expected to commence in January 2023, with collaboration coming from various market leaders and participants.
The report stated: “A digital euro scheme appears to be the best option for ensuring that everyone in the euro area could pay and be paid in digital euro and for achieving the objectives of a digital euro as a monetary anchor, securing its strategic autonomy and economic efficiency.
“To this end, a digital euro scheme would establish a set of common rules, standards and procedures that would need to be adhered to by supervised intermediaries in distributing the digital euro and that would ensure a balance between the respective roles and responsibilities of the Eurosystem and supervised intermediaries.
“It would facilitate a homogenous end user experience across the euro area, while leaving the market with significant freedom in distributing the digital euro and developing innovative front-end solutions for their customers.”
The second phase of the ECB report also outlined the role of private banks in a possible rollout of a CBDC, with credit institutions and payment services managing services of the digital euro if it were to be issued via retail.
“Supervised private intermediaries” will be selected to best provide user-facing services, along with the development of business models associated with the CBDC.
The report also reads that the entities selected by the ECB will serve as a “direct counterpart for individuals, merchants and businesses”, who wish to adopt the digital euro.
“Their responsibilities would include offering user-facing services, such as opening accounts or wallets, payment instruments and onboarding and offboarding, encompassing KYC and AML checks,” the report continued.
“They would also provide devices or interfaces to pay with a digital euro in physical stores, online or person-to-person.”
Whilst the ECB mulls over several design options of a potential digital euro, they become the latest body to show significant interest in the distribution of a CBDC.
India has recently launched a pilot for a digital rupee, whilst Japan has also shown interest in CBDC’s, placing a trial date on its digital Yen for spring 2023. Even the UK has been exploring the idea of a CBDC having recently agreed upon a set of guidelines surrounding stablecoins.
CBDCs have often been described as the next step towards a ‘cashless society’, accelerated by the COVID-19 pandemic. Marion Laboure, Macro Strategist at Deutsche Bank, spoke at a recent Fintech Talents Festival on why governing bodies have been exploring the potential of a CBDC.
She said: “Cash as a means of payment has been declining, so that’s why banks have been looking at CBDCs but not just banks, regulators too to make CBDCs and cash complimentary. Because we also need cash for financial inclusion for those who do not have a bank account.
“But there is only a certain amount of cash you keep stored, with manual factor risks included also. Bank accounts are easier, safe and secure.”