ECB to kick off digital euro tests next month
The European Central Bank (ECB) is pushing ahead with its plans for a digital euro, as it transitions from its initial exploratory phase to a more concrete preparation phase. The move follows a year-long investigation that began in October 2021, focusing on the possible designs and distribution channels for the currency.
Based on the latest report, the ECB has moved its digital euro project into a two-year “preparation phase” starting on November 1. During this phase, the central bank will finalize rules, choose private-sector partners, and conduct testing and experimentation for the digital euro.
“We need to prepare our currency for the future. We envisage a digital euro as a digital form of cash that can be used for all digital payments, free of charge, and that meets the highest privacy standards. It would coexist alongside physical cash, which will always be available, leaving no one behind,” said Christine Lagarde, President of the ECB.
The digital euro aims to offer secure and free electronic payments to people across the 20 countries in the eurozone. The project, once completed, would enable the issuance of a digital currency that is free to use and guaranteed by the ECB, making it safer than private alternatives.
The primary goal of introducing a digital euro is to address the shortage of European payment service providers. This move aligns with a broader initiative proposed by the European Union in June to enhance competition in the payments sector and legally establish the digital euro as an accepted form of payment.
The milestone places the ECB ahead of other G7 central banks in their CBDC efforts and could serve as a blueprint for other central banks. However, the regulator warned that it will only make a final decision to issue the digital euro once the European Union’s legislative process is completed. And the bank remains open to adjusting the currency’s design based on the outcomes of these legislative discussions. So, the journey to a digital euro might still have a few speed bumps ahead.
In the bigger picture, this isn’t just about the ECB’s tech adventures. A digital euro could shake up Europe’s financial scene, boosting its resilience, slashing payment costs, and maybe even making way for newer, cooler fintech innovations.
“As people increasingly choose to pay digitally, we should be ready to issue a digital euro alongside cash. A digital euro would increase the efficiency of European payments and contribute to Europe’s strategic autonomy,” explains Fabio Panetta, ECB Executive Board member and Chair of the High-Level Task Force on a digital euro.
