Group items tagged

On June 28, the European Commission published a regulatory proposal for the digital euro, on which the it suggested a way to design a digital euro and how to integrate it into EU laws. Jonas Gross reviewed the proposal with a focus on its privacy aspects, including how it can be ensured that major design elements, such as related to privacy, will not be changed over time. It will need clear rules on governance and democratic political procedures for changes in the design. Further, it should be seriously considered to make (part of) the code open source, e.g., around the exact data that is recorded.

The European Central Bank (ECB) published the 3rd progress report on the digital euro, as well as the findings of focus groups on people's views on the features of a potential digital wallet. The digital euro will be potentially available initially to euro area residents, merchants and governments, it could be made available via existing banking apps and a Eurosystem app, and offline and person-to-person payments were seen as highly valued.

"With cash, central banks already provide a means of payment that is risk-free, widely accessible and easy to use, and that leaves no-one behind. But the rapid digitalisation of our economies requires us to complement cash with its evolution in the digital sphere: a digital euro. As a central bank, we need to be ready for future evolutions and make sure that the money we issue maintains its role as a monetary anchor in the digital era, thereby reassuring us that one euro is one euro whatever form it takes and wherever we go. And it cements people's trust in our currency.[ 3 ]"

The European Central Bank (ECB) announced that the Eurosystem will look into how wholesale financial transactions recorded on distributed ledger technology (DLT) platforms could be settled in central bank money (i.e., wholesale central bank digital currency (CBDC)). The purpose of this initiative is to (i) consolidate and further develop the ongoing work of Eurosystem central banks in this area, and (ii) gain insight into how different solutions could facilitate interaction between TARGET services and DLT platforms.

The aim of the market research exercise was to obtain feedback from relevant interested parties and to gain non-binding information on potential technical solutions for a digital euro. The feedback received has helped the Eurosystem to better understand the current level of knowledge in the market and the existing experience in building solutions and identifying suitable technologies to potentially implement a digital euro.

The Leibniz Institute for Financial Research SAFE published a paper that weighs the pros and cons of a possible digital euro. It concludes that, if the decision on adoption had to be taken today, the arguments against would outweigh those in favor. However, a reasonable case can be made that having in place digital payment infrastructures at the central bank, potentially accessible by a very large user base, may help overcome adverse contingencies. The related operational and legal infrastructures require a long preparatory phase. Preparing in advance can therefore be useful, even though the eventual use may appear uncertain or even unlikely.

The European Central Bank (ECB) published an update on the work of its digital euro scheme Rulebook Development Group (RDG) including progress with drafting based on the design choices endorsed by the ECB's Governing Council, and the group's next steps. The ultimate goal of the Group's work is to define the roles and contributions of the different actors so that the desired digital euro functionalities and user experience can be coherently created by those different actors, while allowing for innovation and competition.

"In the euro area, consumers have multiple payment options and a very efficient retail payments system. The currency enjoys high levels of trust and is not challenged by the emergence of private currencies, such as Bitcoin, or by the risk that cash, a monetary system's anchor, will disappear. Therefore, creating a CBDC for retail purposes in the euro area offers little obvious value added, at least for the foreseeable future. However, there is a strong case for building a CBDC that banks could use for cross-border wholesale purposes (ie with other currencies). "

As part of a new recurring agenda item, members were invited to report on business cases in the payments, securities, and collateral management domains where DLT could make a difference compared to non-DLT settlement systems. https://www.ecb.europa.eu/paym/groups/ntwcg/pdf/ecb.ntwdocs230907_presentations_3rd_ntwcg_meeting.en.pdf https://www.ecb.europa.eu/paym/groups/ntwcg/pdf/ecb.ntwdocs230907_business_cases_3rd_ntwcg_meeting.en.pdf

Ensuring adoption of central bank digital currencies - An easy task or a Gordian knot? The European Central Bank (ECB) published a paper that surveys the key elements involved in the adoption of any new means of payment and discusses failed and ongoing initiatives with public digital money. It concludes that ensuring the desired level of adoption of retail central bank digital currency (CBDC) may impose significant constraints on central bank design choices and policy goals. In fact, in some settings, central banks may find themselves on the horns of a dilemma in seeking to balance the needs to (i) preserve the central bank's hierarchy of policy goals, (ii) increase the chances of adoption and use of CBDCs by consumers and retailers, and (iii) avoid any adverse economic effects.

The European Central Bank (ECB) will be running a digital euro prototyping exercise to allow market participants to develop front-end prototypes that can be integrated with the back-end infrastructure developed by the Eurosystem. The documents were provided to the five companies that were selected to carry out the experimental work (CaixaBank (peer-to-peer online payments), Worldline (peer-to-peer offline payments), EPI (point of sale payments initiated by the payer), Nexi (point of sale payments initiated by the payee), and Amazon (e-commerce payments)). The material published provides the information needed by any market participant to develop front-end prototypes compatible with the Eurosystem's back-end infrastructure, without restricting participants' potential to innovate. The prototyping exercise is expected to be completed in the first quarter of 2023.

The Banco de España is starting a wholesale central bank digital currency (CBDC) project, and asking financial institutions and tech providers to submit proposals for the initiative by January 31. The project will focus on (i) simulating wholesale CBDC funds transfers; (ii) testing the integration of a wholesale CBDC in the settlement of financial assets; and, arising from the above, (iii) analyzing possible pros and cons of a wholesale CBDC versus traditional processes, procedures and infrastructures. https://www.bde.es/f/webbde/INF/MenuHorizontal/Servicios/tokens_digitales_mayoristas/Programa_de_experimentacion.pdf

The European Investment Bank (EIB) launched Project Venus, their second euro-denominated digitally native bond issue and first using private blockchain technology. The €100 million, two-year bond was issued, recorded and settled using private blockchain-based technology on Goldman Sachs' GS DAPTM tokenization platform. Although investors purchased and paid for the security tokens using traditional currency, the transactions were settled in wholesale CBDC issued by the Banque de France and the Banque Centrale du Luxembourg. Société Générale Security Securities Services (SGSS Luxembourg) provided on-chain custodian services.

In 2021 the European Central Bank (ECB) launched its first survey on the usage of cash among companies to understand their strategic view on the current and future use and acceptance of cash. It found that almost all businesses surveyed accept cash (even in cash-lite countries, like the Netherlands, 90% accept cash), most businesses prefer customers to pay with card but a quarter prefer cash, security and reliability are the top criteria when deciding on payment type, and very few that accept cash intend to stop accepting it in the future. The ECB concluded that the results provide further support for the Eurosystem's cash strategy to continue to ensure that cash remains widely available and accepted as a means of payment and store of value.

The European Central Bank (ECB) published an article that provides an overview of the economics of central bank digital currency (CBDC). It first outlines the economic forces that shape the rise of digital money and motivate the current debate. It then looks at the implications for monetary policy and financial stability before discussing policy issues and challenges. Finally, it highlight several areas where the understanding of digital money could be improved by further research.

The Council of the European Union (Eurogroup) reaffirmed its support for the continued efforts of all European and national institutions involved in the preparatory work for the potential issuance of a digital euro. It asserted that a digital euro should complement, and not replace cash, and should guarantee access to central bank money for euro area users in times of increased digitalization in payments.A risk-based approach could be followed to allow for more privacy in the case of less risky transactions, which could ensure a wider adoption of the digital euro among citizens with a stronger preference for privacy. The Council also supports the exploration of an offline functionality which would serve a wider range of use cases and also contribute to financial inclusion.

As announced in December 2022, the European Central Bank (ECB) is inviting market participants to take part in market research to get an overview of options for the technical design of possible digital euro components and services. Participation is voluntary and will not have any impact on eligibility for future procurement procedures related to a digital euro or any other topic. Nor will it imply any pre-selection for a potential subsequent tender. Submissions are due by February 17, 2023 in a fully anonymous manner, avoiding trade names.

The European Central Bank (ECB) published a digital euro "way forward" slide deck that provides a nice summary of the current status of their CBDC project, including the timeline

A Digital Euro Association working group of global experts delved into the topic of CBDC Privacy, examining the importance of privacy in CBDCs and how it impacts the successful adoption, usage, and implementation of digital currencies. Their paper examines privacy-preserving technologies and provides recommendations for ensuring privacy and security in a CBDC system.

"Our priority for the digital euro project has always been clear: to preserve the role of central bank money in retail payments by offering an additional option for paying with public money, including where this is not possible today, for example in e-commerce. The digital euro would not replace other electronic payment methods, or indeed cash. Rather, it would complement them. And by doing so, it would safeguard our monetary sovereignty while strengthening Europe's strategic autonomy."