The European Central Bank (ECB) is making steady progress toward launching the digital euro, a prospective central bank digital currency (CBDC) for the eurozone. The project, which began preparing in November 2023, aims to provide a safe, user-friendly payment system that combines privacy, accessibility, and financial compliance. We project this phase to end in late 2025, and once we fully define the legal framework and feature specifications, we will decide whether to issue the digital euro.
A recent progress report from the ECB gives insight on critical areas of development, including privacy and offline functionality, which pose substantial problems for CBDC developers. The digital euro aims to offer offline transactions the same level of privacy as cash, guaranteeing the confidentiality of personal transaction details between the payer and payee, without sharing them with payment service providers or the Eurosystem. To protect users’ data in online transactions, the ECB intends to implement robust security measures such as pseudonymization, hashing, and data encryption, ensuring that payment service providers only access the minimum information required to comply with regulations such as anti-money laundering laws. Additionally, independent data protection authorities will monitor the ECB’s compliance with EU privacy laws.
The ECB is also looking for solutions for offline payments, which allow users to complete transactions without using the internet. This could include mobile devices or smart cards that communicate directly with one another. One potential option under study is the use of battery-powered or non-powered smart cards that can communicate with a “bridge device” to enable safe, real-time payments.
Another essential factor to consider is the digital euro’s holding restrictions. Previous negotiations recommended a limit of €3,000 per individual, but the economic impact of this limit remains a subject of ongoing disagreement. Experts from national central banks are currently evaluating the factors that could impact the holding restrictions, and they anticipate revealing the final calibration in upcoming reports.
The ECB has formed seven workstreams to assist the program, with the goal of improving the design, user experience, and technical specifications of the digital Euro. These teams collaborate with market participants and stakeholders to harmonize national regulations, ensure standardization, and finalize the digital euro rulebook. Furthermore, the ECB intends to conduct user research among consumers and merchants throughout the eurozone to gather feedback that will assist in fine-tuning the currency’s features and assure simplicity of use.
As the preparation phase continues, the ECB remains committed to working with the public and stakeholders to ensure that the digital euro serves the demands of its users. The initiative’s goal is to build a secure, efficient, and privacy-conscious payment system that will help shape the future of European finance while also tackling major issues like offline functioning and holding limitations.
