European Central Bank Wraps Up Digital Euro Prototypes; Decision on Development Awaits

As part of the investigation phase of its digital euro project, the European Central Bank (ECB), which serves as the European Union’s central bank, has released two reports on the institution’s market research and prototyping exercise. 

The Eurosystem, which includes the ECB and the national central banks of the EU countries whose currency is the euro, has invited market participants to participate in the market research. 

This was to allow them “to gain an understanding of the industry-specific knowledge and the ongoing experience of building potential technical solutions for a digital euro. 

The research indicates that there is a sufficiently large pool of European providers that are able to develop digital euro solutions. It also suggests that different types of architectural and technological design options are available to build a technical solution for a digital euro,” the Frankfurt-based bank said in a statement. 

Between July 2022 and February 2023, the ECB carried out a prototyping exercise on what paying with a digital euro could be like for various use cases. 

The exercise comprised the integration of five user interfaces developed by a number of providers for each use case (front-end prototypes), as well as a settlement system the Eurosystem designed and developed (back-end prototype). 

Different design choices were put to test to determine if it could be possible to technically implement and integrate them into the Eurosystem’s settlement scheme, according to the statement. 

“The tests concluded that it is possible to smoothly integrate a digital euro into the existing payment landscape, while still leaving scope for the market to use innovative features and technologies when distributing a digital euro. The findings also confirm that a digital euro could, in principle, work online and offline using different technical designs,” the ECB said. 

Meanwhile, there remains the question of whether an offline solution that complies with the Eurosystem’s requirements and delivers the necessary scale can be delivered in the short to medium term with the existing tech, the bank concluded. 

Forthcoming decision

The EU launched its digital euro project in October 2021. The ECB’s Governing Council is scheduled to decide in autumn 2023 whether it intends to proceed with a preparation phase to develop and test the EU’s designed central bank digital currency (CBDC). 

“If the Governing Council opts to go ahead with a preparation phase, this does not necessarily mean that it will issue a digital euro. The Governing Council will take a dedicated decision on whether to issue a digital euro at a later stage,” according to the bank.