FAQs on the digital euro

Q1. Would a digital euro replace cash?

No, a digital euro would be complementing cash, not replacing it. Cash will continue to be available in the euro area. A digital euro would function alongside cash as a response to consumers’ evolving demand to pay digitally, in a fast and secure way.

Q2. What consequences would a digital euro issuance have for the banking sector?

A digital euro should not have negative consequences for the financial sector. To do this, we will take into account the following requirements: i) a digital euro should be mainly used as a means of payment and not become an instrument for financial investments, and ii) supervised intermediaries should be involved in the handling of a digital euro.

Q3. Why would a digital euro be better than stablecoins and crypto-assets?

A digital euro would be central bank money. This means that it would be backed by a central bank, designed to meet the needs of citizens: it would be risk free and respect privacy and data protection. Central banks have a mandate to maintain the value of money, independently of its physical or digital form.

The stability and reliability of stablecoins ultimately depend on the entity that issues them and on the credibility and enforceability of their pledge to maintain value over time. Private issuers may also use personal data for commercial purposes.

There is no identifiable entity liable for crypto-assets, which means that claims cannot be enforced.

Q4. Will a digital euro be based on a distributed ledger technology (DLT) such as Blockchain?

The Eurosystem is experimenting with different approaches and technologies to making a digital euro available. This includes both centralised and decentralised solutions such as DLT. No decision has been taken yet, however.

Q5. Would a digital euro be an alternative currency within the Eurosystem?

No – a digital euro would be just another way to make payments with the euro, our single currency, in Europe. It would be convertible one-to-one with banknotes. A digital euro would respond to citizens’ and firms’ developing preference for digital payments.

Q6. Why would consumers want to use a digital euro?

A digital euro would be a digital means of payment that is as secure, as easy to use and as cheap as cash is today. It would be free of cost for people using it for basic payment needs and could be used everywhere within the euro area.

In a world in which citizens are making more and more payments electronically and in which the digital payments market continues to grow, a digital euro would provide an additional choice for all – households, small businesses and large corporates – to make payments using central bank money.

For payees such as merchants and small businesses, a digital euro would provide an additional means to receive payments from their customers.

A digital euro could also offer advanced functionalities, such as automated payment features or using some form of digital identity.

Q7. What if a non-euro area central bank issues its digital currency before the Eurosystem?

All major central banks are examining the possibility of issuing a central bank digital currency, but this is neither a race nor a competition. There is a common understanding at the G20 level that cooperation is needed when it comes to the international use of central bank digital currencies.

Moreover, thoroughness and safety come before speed: we need a system that works for everybody and is stable from day one. A digital euro requires a certain infrastructure on the part of central banks and the supervised intermediaries involved.

The Eurosystem is collaborating with other central banks to understand the implications of issuing a digital currency for the various economies in question. We benefit by sharing our respective thoughts and experiences.

We are looking into a possible digital euro to respond to our citizens’ needs and plan to rely on European options for payments as a matter of autonomy and sovereignty.

Q8. What is the timeline for introducing a digital euro?

Before taking a decision on whether to issue a digital euro we need to decide on its potential design and test its ability to meet the needs of end users. A number of steps will need to be taken before a digital euro can be introduced.

Following the experimentation work done by the ECB and the euro area national central banks, in July 2021 we launched the investigation phase of the digital euro project. This phase aims to identify the optimal design of a digital euro and ensure it meets the needs of its users. During this phase we will also analyse how financial intermediaries could provide front-end services that build on a digital euro.

We will complete this work by October 2023.

The Governing Council will then decide whether to move to the next phase, in which we would see the development of integrated services as well as carry out testing and possible live experimentation of a digital euro. This phase could take around three years.

We are treating this matter as a priority, but we also need to take the time to do it right. The impact of a digital euro needs to be analysed carefully before taking any decision.

Q9. Why do you suggest a cap on the “tier one” deposits? How low should the interest rate on the “tier two” deposits be?

We are examining the possible risks to financial stability and monetary policy transmission that could result from the introduction of a digital euro.

If introduced, a digital euro would be an additional payment option rather than a form of financial investment. The Eurosystem is assessing design options that would prevent people holding large amounts of digital euro as a risk-free investment or shifting funds away from bank deposits to a digital euro. Alongside the possibility of setting outright holding limits, another option is tiered remuneration.

If digital euro holdings were to be remunerated, the remuneration of individuals’ holdings for basic retail use in payments (i.e. tier one) would be zero or positive and therefore never worse than that of cash. The remuneration of “tier two” should be a certain level below that of assets which are considered safe, in order to avoid a digital euro becoming a form of investment, since central bank money is the asset which best combines safety and stability.

We have not taken any decision on tiered remuneration or a possible threshold, and may consider alternative options as we continue our analysis.

Q10. What data do you expect to process for payments made in digital euro? Will you be able to trace people’s payment behaviour and share it with government agencies and other public institutions?

The Eurosystem has no interest in collecting payment data from individual users, tracing payment behaviour or sharing such data with government agencies or other public institutions.

A digital euro would allow people to make payments without sharing their data with third parties, other than what is required to prevent illicit activities.

For payments to remain a private matter, different types of data would need to be protected: the user’s identity, data on the individual payment (e.g. its amount) and meta-data related to the transaction (e.g. the IP address of the device used for the transaction).

Users will likely have to identify themselves when first accessing digital euro services, but different degrees of privacy can still be maintained for their payments.

A high level of privacy could also be supported in other ways. For example, users’ identities could be kept separate from the payment data, allowing only financial intelligence units to obtain this information within a well-defined legal framework in order to identify the payer and payee when criminal activity is suspected.

Q11. You have appointed external companies to develop prototypes for potential user interfaces. What is the purpose of that?

Developing a prototype is a learning activity in an experimental environment – a “lab exercise”. We are testing the extent to which the Eurosystem’s back-end functions (the settlement infrastructure working in the background to record transfers and digital euro positions) can be smoothly integrated with existing front-end payment solutions available to the public. We are focusing on integration in five specific use cases: peer-to-peer online payments; peer-to-peer offline payments; point-of-sale payments (e.g. in shops, initiated by the payer); point-of-sale payments initiated by the payee; and e-commerce payments. No real payments will be processed in the prototyping exercise (a digital euro has not been issued, so we are merely conducting simulations). The prototype resulting from these experiments is not intended to become the core of an eventual production system.

Q12. How did the ECB select the companies participating in the prototyping?

The ECB ran a public call for expressions of interest for taking part in the prototyping exercise. A total of 54 companies applied, of which five were selected. Four essential capabilities and 28 specific capabilities (defined in advance and published on the ECB’s website) were used to assess applicants’ suitability for the five use cases mentioned above. The selection process set out to identify a sample group of companies that covered all types of market player (intermediaries, payment processors and retailers). Companies participated in the selection process at their own expense. The level of interest in participating in the prototyping shows that private companies see the digital euro as an important development and one to which they would like to contribute (e.g. to enhance their reputation), even for no financial gain.

Q13. Will the results of the prototyping be published?

The need for transparency to guarantee a level playing field was set out in the initial call for interest. The ECB decided to go beyond what EU rules foresee for unremunerated contracts and applied greater transparency than required. Applicants were made aware that all information will be shared. During the development phase in the fourth quarter of 2022, the ECB provided technical clarifications, as needed, to the providers of front-end prototypes and aligned integration expectations with these providers (i.e. how the front and back-end components may be interfaced for the prototyping exercise). In the second quarter of 2023, the results of the prototyping exercise will be published, together with the technical information supporting the results.

Q14. How will the ECB ensure privacy of user data?

The prototyping exercise will rely fully on simulated transactions. No individual or aggregated data on actual payments will be used or shared with the providers of front-end prototypes and participants in the experiments and tests. Whatever data are needed for the lab exercise will be generated solely for the purpose of the experiments. The ECB intends to observe the highest possible data privacy standards at all times.

Digital euro scheme Rulebook

Q1. Why a digital euro scheme?

Following the decision of the ECB’s Governing Council to launch the investigation phase of the digital euro project, the Eurosystem has explored various options for the distribution of a digital euro. A digital euro scheme^[1] is considered to be the best option for achieving the objectives of a digital euro and harnessing the respective strengths of the public and private sectors. The digital euro scheme will lay out the common rules and procedures for the distribution of the digital euro by supervised intermediaries, ensuring consistent accessibility and user experience across the euro area. It will also allow sufficient flexibility for the private sector to innovate and offer value-added services on top of digital euro services.

Q2. How will the digital euro scheme Rulebook be developed?

To support the drafting of the scheme Rulebook, obtain market input and gain the perspective of the industry, consumers and merchants, the Eurosystem established a digital euro scheme Rulebook Development Group (RDG). This Group is composed of Eurosystem staff and market representatives with relevant experience. The RDG works on the basis of the design options endorsed by the Governing Council as regards the digital euro programme. It reports to the Chair of the RDG who, in turn, reports directly to the Digital Euro Programme Manager. Market representatives were nominated by relevant European stakeholder associations that represent key players in the European retail payments market, such as:

• on the supply side: payment service providers, the banking community, payment institutions or e-money institutions;
• on the demand side: consumers, retailers with a physical presence, online retailers, businesses/corporations and small and medium-sized enterprises.

Candidates were selected by the digital euro team based on their experience in retail payments and the skills required for the role. Candidates selected have become members of the digital euro scheme RDG, representing their respective stakeholder associations.

The digital euro scheme RDG plans to meet on a monthly basis. The members are expected to review and provide feedback on the draft sections of the Rulebook prepared by the RDG’s secretariat.

In addition and in parallel to the RDG, a number of Rulebook development workstreams will be launched to focus on specific sections of the digital Rulebook that require particular expertise. The precise scope, composition and approach for each workstream will be assessed on a case-by-case basis. Like the RDG, the composition of the Rulebook development workstreams will typically involve representatives from both the Eurosystem and the European retail payments industry, who will be expected to review and provide feedback on draft material prepared by the RDG’s secretariat. Draft sections of the Rulebook prepared in the various Rulebook development workstreams will always ultimately be presented and reviewed in the RDG.

Q3. What scope will the digital euro scheme Rulebook cover?

The digital euro scheme will lay out the common rules and procedures that supervised intermediaries must follow for the distribution of the digital euro. These rules and procedures will cover, in particular:

• the functional and operational model of the digital euro scheme (e.g., end-to-end flows, core requirements for supervised intermediaries, minimum user experience standards, etc.);
• the adherence model of the digital euro scheme (e.g., scheme eligibility criteria, obligations of participants, etc.);
• the technical scheme requirements (e.g., IT infrastructure, application programming interface implementation, technical standards, etc.);
• the risk management requirements;
• The digital euro scheme management rules (e.g., scheme governance, change management processes, etc.).

Q4. How can Europeans participate in, and contribute to, the Rulebook work?

External input on rulebook work will be collected by the Eurosystem through the RDG, as well as through associated workstreams focusing on specific sections of the Rulebook (the Rulebook development workstreams). The members of the RDG are representatives of European stakeholder associations. As such they represent the views of their respective stakeholder associations. It is their responsibility to align the stakeholders for each of the issues at hand towards one aligned view.

The composition of the RDG and the procedure for joining this Group are described above under “How will the digital euro scheme Rulebook be developed?”.

The composition of the Rulebook development workstreams will – depending on the focus of each workstream – be decided on a case-by-case basis and will typically involve representatives from the impacted stakeholders, such as European consumers and merchants as well as supervised intermediaries. Application procedures for joining the respective Rulebook development workstreams will be published on the ECB’s website in due course.