The European Central Bank (ECB) announced on Oct. 18 that its project to develop a digital form of the euro is progressing to the preparation phase.
“We need to prepare our currency for the future. While we haven’t yet decided whether to issue a digital euro, we’re getting ready. We envisage a digital euro… that can be used for all digital payments, coexisting with physical cash, leaving no one behind.”
The bank said that the preparation phase will finalize the digital euro rulebook and choose providers that could create a platform and infrastructure. The phase will also involve testing, experimentation, and engagement with the public and stakeholders.
The bank noted that the preparation phase will begin in November and will last two years. This follows a two-year investigation phase that began in October 2021.
The ECB emphasized that a digital euro could be used across the euro area. It would offer low costs, high privacy, and instant settlement, and could be used in peer, government, and retail transactions. The bank noted that “no digital payment instrument offers all these features” currently and said that a digital euro would do so.
The latest announcement also addresses concerns around privacy. The ECB stated that any digital euro would provide “cash-like privacy” and would make data protection a priority. It said that the Eurosystem would not be able to see users’ personal details. However, a FAQ page indicates that illegal activities would be traced.
As noted, the latest development does not mean that the bank will necessarily issue a digital euro. The ECB explained that its Governing Council will need to make a decision on the matter after the European Union completes a legislative process.
Digital euro could be blockchain-based, but not a crypto
It is still unclear to what extent the digital euro will rely on blockchain and related technology. However, the ECB’s FAQ pages state that it is exploring distributed ledger technologies (DLT) and decentralized systems as well as centralized systems.
The bank further clarified that regardless of the technology used, a digital euro would not be considered a cryptocurrency. This is because cryptocurrencies, unlike the proposed digital euro, are not backed by any central entity.
The ECB also refers to the asset as a central bank digital currency (CDBC) at times in those FAQ pages, despite otherwise simply calling it the “digital euro.”
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