After months of consultation, the European Central Bank decided on a digital euro project. Officials insist that the new version of the European common currency should “ensure privacy” and provide access to “the safest form of money” at a “negligible” cost to the environment compared to Bitcoin.
Eurosystem initiates digital euro project
The Governing Council made a long-awaited decision on Wednesday to initiate the “investigation phase” of a project to issue a central bank digital currency (CBDC). The phase lasts two years, in which key aspects of the design of the digital euro and questions about its dissemination are dealt with. In any case, it will not replace cash and a final decision on how to spend is pending.
“Nine months have passed since we published our report on a digital euro. During this time we have carried out further analysis, solicited input from citizens and professionals and carried out some experiments with encouraging results. All of this has prompted us to shift up a gear and start the digital euro project, ”said ECB President Christine Lagarde after the meeting. She also emphasized:
Our work aims to ensure that citizens and companies have access to the most secure form of money, central bank money, even in the digital age.
The Eurosystem, consisting of the ECB and the national central banks of the 19 member states of the Eurozone, wants to take into account the needs of future users in the functional design of the digital euro. The investigation phase will include focus groups, prototyping and conceptual work to examine the use cases for the currency, the regulator said in a press release.
The ECB will work with the European Parliament and the European Commission to determine what changes to the Union legal framework would be required to introduce the CBDC. The bank will also assess the potential impact of a digital euro on the market, while ensuring privacy and avoiding risks to its participants. The regulators want to define a business model for supervised intermediaries within the digital euro ecosystem.
Europe’s CBDC should be energy efficient
The ultimate goal is to create a “risk-free, accessible and efficient form of central bank digital money” that meets the needs of European citizens and businesses, the ECB said. At the same time, the design of the CBDC must prevent illegal activities and undesirable effects on financial stability and monetary policy in the euro zone.
The investigation phase will build on the experiments carried out by the ECB and the national central banks in recent months. They were conducted in several key areas – the digital euro ledger, data protection and anti-money laundering, circulation restrictions, offline access for end users, and device support.
The tests have shown that one possible solution is to combine centralized and decentralized elements in the digital euro architecture. “Both the Eurosystem’s TARGET Instant Payment Settlement (TIPS) and alternatives such as blockchain have been able to process more than 40,000 transactions per second,” said the central bank.
The core infrastructure of the European CBDC will be environmentally friendly, assured the ECB. The energy consumption to maintain the high transaction volume is “negligible” compared to the power required to process transactions for cryptocurrencies such as Bitcoin, emphasized the European Central Bank.
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