The European Central Bank (ECB) has finalized prototypes for a digital euro as it prepares to take a decision later this year over whether to develop the EU's fiat currency in a new format, according to reports released on Friday.

The ECB says its potential central bank digital currency (CBDC) can be designed to boost innovation – but appears more skeptical about using Web3-style distributed ledger technology and smart contracts.

“This exercise shows that it is possible to smoothly integrate the digital euro design choices into the existing payment landscape while leaving ample scope for innovative features and technologies,” ECB Executive Board member Fabio Panetta said in a letter to the European Parliament’s Irene Tinagli, adding that findings “will serve as input for both the functional and technical design of a digital euro.”

While the digital euro was at one stage floated as an answer to Facebook’s own currency, Libra – subsequently renamed diem and then abandoned – the ECB’s prototypes have been plagued by controversy due to the involvement of another U.S. tech giant, Amazon.

As EU lawmakers called for a U-turn on the plans, Panetta appeared keen to downplay the long-term significance of Amazon’s involvement, saying that prototypes were a “lab experiment” to be “discarded and not used further.”

Design

For the back-end of the prototype – developed by the central bank itself – the ECB rejected distributed ledger technology, but favored a centralized model based on unspent transaction outputs, or UTXO, that are also used in crypto transactions.

The UTXO system “allows for fast and efficient validation of transactions,” supporting different payment types while protecting privacy, the ECB report said, adding that it also allowed conditional payments to be made without using smart contracts – a type of automated software popular in decentralized finance.

In June, the European Commission is due to publish a bill covering digital euro privacy safeguards and other major issues. But lawmakers have expressed skepticism over the CBDC’s benefits, particularly if it doesn’t allow for innovations such as programmable money where users can control how funds are subsequently used.

The EU is one of many jurisdictions across the world currently contemplating a CBDC – including near neighbors at the Bank of England.

Read more: Lawmakers Could Still Nix Digital Euro, ECB’s Panetta Says