European Central Bank Kicks Off New Phase Of Digital Euro Project
The European Central Bank (ECB) is moving forward with its central bank digital currency (CBDC) plans. Today, the bank announced that its Governing Council had approved the investigation phase of the digital euro project.
Investigation Phase Scheduled For 24 Months
The ECB, which has been discussing the potential launch of the CBDC for years, will now move to the exploration stage. According to the announcement released by the bank, the investigation phase of the euro-zone CBDC would last for 24 months.
This phase is aimed at addressing key issues in the design and the distribution of a CBDC. For this purpose, the ECB said it would consult with stakeholders ranging from banks to retailers.
The ECB further noted that the digital Euro is aimed at complementing cash and not replacing it. The project is focused on making sure digital payments are still within the purview of central banks. This is to avoid leaving digital payments to the private sector. 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.”
Lagarde added that the CBDC would meet the needs of EU citizens and avoid making negative impacts on local financial stability and the ECB's monetary policy.
Lagarde had previously said in an interview with Bloomberg that she expects the CBDC to launch within four years.
According to Fabio Panetta, an ECB Executive Board member, experiments carried out so far show that the digital Euro would be environmentally friendly. He said that the energy usage would be negligible compared with the energy consumption and carbon footprints of cryptocurrencies like Bitcoin.
ECB Digital Euro Journey
The ECB has been discussing the potential issuance of the digital Euro for years. In January, the European Commission and the ECB collaborated to evaluate the potential issues that could arise from the digital Euro.
The bank also held a public consultation in which 8,000 participants gave feedback. The consultation that closed on January 12th found privacy a primary concern among 41% of respondents.
Privacy has been one major concern for governments regarding CBDCs as they struggle with finding a balance between preventing illicit financial activity and preserving confidentiality.
However, several central banks around the world are moving forward with their CBDC plans. Central banks in countries like the United Kingdom and Japan are moving from discussion to exploration of a CBDC.
If the ECB eventually adopts a CBDC, it would most likely follow in China's footsteps. China has already advanced CBDC plans with trial runs in different provinces across the country. Meanwhile, both South Korea and Sweden appear to have moved from exploration to testing in recent months.