Report on a digital euro
On 2 October 2020 the ECB published a report on a digital euro.
This report examines the issuance of a central bank digital currency (CBDC) – the digital euro – from the perspective of the Eurosystem. Such a digital euro can be understood as central bank money offered in digital form for use by citizens and businesses for their retail payments. It would complement the current offering of cash and wholesale central bank deposits.
Reasons to issue a digital euro
A digital euro could support the Eurosystem’s objectives by providing citizens with access to a safe form of money in the fast-changing digital world.
A digital euro would be central bank money made available in digital form for use in retail payments
- In a range of future scenarios, a digital euro could be a viable option for the Eurosystem in order to achieve the objectives related to core central bank functions and the general economic policies of the EU, provided that its design meets scenario-specific requirements.
- A digital euro could be issued (i) to support the digitalisation of the European economy and the strategic independence of the European Union, (ii) in response to a significant decline in the role of cash as a means of payment, (iii) if there is significant potential for foreign CBDCs or private digital payments to become widely used in the euro area, (iv) as a new monetary policy transmission channel, (v) to mitigate risks to the normal provision of payment services, (vi) to foster the international role of the euro, and (vii) to support improvements in the overall costs and ecological footprint of the monetary and payment systems.
- The materialisation of a specific scenario does not necessarily warrant issuance of a digital euro to the extent that alternative solutions are available.
The possible advantages of a digital euro and the rapid changes in the retail payment landscape imply that the Eurosystem needs to be equipped to issue it in the future.
See Section 2
Potential effects of a digital euro
The Eurosystem would design the digital euro in such a way as to avoid possible undesirable implications for the fulfilment of its mandate, for the financial industry and for the broader economy.
- The digital euro should be designed so as to avoid potential undesirable consequences of its issuance, thereby limiting any adverse effects on monetary policy and financial stability, and on the provision of services by the banking sector, as well as mitigating possible risks.
- The excessive use of the digital euro as a form of investment and the associated risk of sudden large shifts from bank deposits to the digital euro should be avoided. The digital euro should be available via supervised intermediaries, while IT project risks (for example, project delays or unexpected costs) should be minimised. The Eurosystem should aim at complying with regulatory standards even when exempted, unless it is clearly in the public interest not to do so.
- The digital euro should be an efficient way to achieve the Eurosystem’s goals in comparison with alternatives. Conditions should be established for using it outside the euro area. Digital euro services will need to be highly resilient to cyber threats.
See Section 3
The Eurosystem must address a number of important legal considerations related to a digital euro, including the legal basis for issuance, the legal implications of different design features and the applicability of EU legislation to the Eurosystem as the issuer.
- The concrete design choices for the digital euro would determine the legal basis for its issuance.
- EU primary law does not exclude the possibility of issuing digital euro as legal tender, which would consequently require payees to accept it for payments.
- Certain practical arrangements regarding the distribution of and access to a digital euro could in principle be outsourced, but would need to be subject to strict Eurosystem supervision.
See Section 4
Digital euro functional design possibilities
This report deliberately does not advocate a specific type of digital euro. Any potential solution must satisfy a number of principles and requirements that are identified in this report while complying with relevant legislation.
- The potential features of a digital euro can be designed to meet the core principles of the Eurosystem and the requirements derived in the report.
- Based on the possible features of a digital euro, two broad types have been identified that would satisfy the desired characteristics: offline and online. These types are compatible with each other and could be offered simultaneously to the extent that they both satisfy the core principles and meet the general requirements identified.
See Section 5
Technical and organisational approaches to digital euro services
This section describes selected design options for the technical implementation of a digital euro at the level of the back-end infrastructure and end-user access solutions.
The underlying back-end infrastructure for the provision of a digital euro can either be centralised, with all transactions recorded in the central bank’s ledger, or feature some decentralisation of responsibilities to users and/or supervised intermediaries, thus also enabling the provision of a bearer digital euro. Regardless of the approach, the back-end infrastructure should be ultimately controlled by the central bank.
Different approaches to the back-end infrastructure
- The main difference between a direct and intermediated model is the role of the private sector. While in a direct model supervised intermediaries are mere gatekeepers, in an intermediated model they would play a more prominent role, including that of settlement agents. In both cases, the private sector would be able to build new businesses based on digital euro-related services.
- Solutions for end-user access to a digital euro infrastructure could either be hardware or software-based, or a combination thereof. In any case, front-end access solutions need strong customer authentication and identification.
- End-user solutions and any private systems involved in the provision of digital euro services should interface with the back-end infrastructure of the central bank in a way that ensures the highest protection against the risk of unwarranted creation of digital euro units without authorisation from the central bank.
See Section 6
To ensure that meaningful answers are obtained to the open questions raised in this report, towards mid-2021 the Eurosystem will decide whether to launch a digital euro project, which would start with an investigation phase.
- A comprehensive and balanced policy-oriented assessment of the challenges of a digital euro and its potential relative to alternative options is necessary before issuance of the digital euro can be considered. The views of institutions, citizens and professionals will provide valuable input to this assessment, including through a public consultation.
- Practical experimentation is necessary to test functional design options and explore their technical feasibility, as well as their ability to satisfy the needs of prospective users. Experimental work should involve the private sector and prospective users to the extent necessary and should not pre-empt decisions or commit the Eurosystem to providing a digital euro.
- To ensure that meaningful answers are obtained to the open questions raised in this report, the Eurosystem will consider whether to start a digital euro project towards mid-2021, with the possible launch of a investigation phase aimed at developing a minimum viable product.
- In addition to conceptual analysis and practical experimentation by the Eurosystem, the involvement of European and international institutions, fora and standard-setters would be required to ensure that the digital euro could satisfy the expectations of all prospective stakeholders.
See Section 7