The European Central Bank has announced it will explore the possible creation of a digital euro, launching a two-year project to work on the design.
The project’s launch follows extensive groundwork from the bank including a digital euro report, public consultation, and experiments to assess the technological feasibility of a digital euro.
These experiments found the proposed digital euro core infrastructure would be environmentally friendly compared to the energy consumption of cryptos like Bitcoin.
ECB has indicated a digital euro would complement cash rather than replace it, being a direct claim on the central bank that would reduce risks associated with digital payments and enable purchases across all EU countries.
ECB President Christine Lagarde said: “Our work aims to ensure that in the digital age citizens and firms continue to have access to the safest form of money, central bank money.”
Potential Digital Euro Still Years Away
While the goal of the digital euro project is to be prepared for a digital currency, the ECB says the decision about whether or not to develop a digital euro would come at a later stage – and the development work could take an additional three years.
ECB board member and chair of the high-level task force on a digital euro, Fabio Panetta, said the cautious approach was key to balancing progress with monetary and financial stability.
It [the project] will involve focus groups, interaction with financial intermediaries, prototyping and conceptual work. We will engage with all stakeholders. And we will continue to interact closely with other European institutions to define the necessary legislative framework.
Fabio Panetta, ECB
“Money and payments permeate our everyday lives and underpin the economy. Any changes stemming from technological innovation, if not properly designed, can become a source of disruption for our financial systems, economies and societies,” Panetta added.
How Advanced Are Major Nations with their Digital Currencies?
A number of jurisdictions are running their own experiments in readiness for the adoption of digital versions of national currencies.
A digital dollar project being run by researchers from the Federal Reserve Bank of Boston and MIT already has at least two prototype platforms that allow users to store and make transactions using the currency.
In April 2021, both the UK and Japan started exploring a central bank digital currency (CBDC), while China recently expanded on its initial CBDC work to trial paying some workers’ salaries in digital yuan.
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