The European Central Bank (ECB) has decided to definitively approve the launch of a formal investigation on the euro in the form of digital currency after nearly nine months in which they have addressed the preliminary considerations on the needs of citizens and the suitability of this kind of money.
In a statement published this Wednesday, the ECB explained that the investigation phase will last 24 months. However, it has warned that the opening of this investigation “does not prejudge” the decision on whether the digital euro will be launched on the market or not. Once the process is complete, the agency will have to decide again whether or not to implement it. | What is the digital euro and how does it work?
” Our work is aimed at ensuring that in the digital age, citizens and businesses continue to have access to the safest form of money: money from a central bank,” stressed the President of the ECB, Christine Lagarde.
During the investigation phase that is now opening, the ECB will have to resolve some “key” questions such as the design and distribution of this digital currency. The monetary authority has stressed that it must meet the needs of Europeans, prevent illicit activities and avoid an “undesirable” impact on financial stability and monetary policy.
On the other hand, experiments have been carried out in the following four areas: the digital record book in euros; privacy and fight against money laundering ; limits to the digital euro in circulation; end user access while not connected to the internet and facilitates inclusion with appropriate devices. “No major technical obstacles were identified for any of the evaluated design options,” reveals the note published by the central bank.
The blockchain works
Both the Eurosystem’s TARGET Instant Payment Settlement (TIPS) and alternatives such as blockchain have been shown to be capable of processing more than 40,000 transactions per second. The experiments also revealed that architectures combining centralized and decentralized elements are possible.
The member of the Executive Board of the ECB in charge of payment systems, Fabio Panetta, has indicated that the body will be in contact with the European Parliament and other European legislative bodies to inform them regularly of its findings. Citizens, retailers and the payments industry will also be involved.
What will be examined in the new digital euro project?
The research phase will encompass focus groups, prototyping, and conceptual work. The use cases in which the digital euro will have to meet its objectives will be examined: to be an efficient, accessible and risk-free form of central bank money.
“A digital euro would reduce transaction costs , promote financial inclusion, by ensuring that people who currently do not have access to financial services can use digital payments, and allow users to buy in any store and country in the area of the euro “, has added Panetta.
With regard to banks, during this research phase design options that avoid risks for financial intermediaries will be addressed. Specifically, a business model will be defined for these actors in the digital euro ecosystem.
The ECB has stressed that the architecture it employs in the digital euro infrastructure will be “friendly” to the environment. Of the architectures that have been experimentally tested, the energy cost used to perform tens of thousands of transactions per second has been “negligible” compared to the energy consumption “of crypto assets such as bitcoin.”