ECB publishes progress update on digital euro preparation phase
Privacy, offline functionality and possession caps are the key focus points of the first progress report delivered this week by the European Central Bank (ECB) regarding its digital euro preparation phase, which has been underway since November.
ECB publishes digital euro progress report
Seven months later, and Piero Cipollone, ECB executive board member and chair of the High-Level Task Force for the digital euro, says preparations are “progressing well”.
Set to last for two years, the ECB is currently using the project’s preparation phase to identify providers for the digital euro’s supporting platform, to establish a technology rulebook, and to ensure compliance with the requirements of the Eurosystem, among other initiatives.
According to the progress report, multiple elements of the phase’s remit are showing good signs of development.
Privacy protocols: online and offline
With regard to user privacy – a previously-stated key focal point of the digital euro project for ECB president Christine Lagarde – the report says the central bank has agreed on technical features that “guarantee that online digital euro transactions will provide even higher privacy standards than current digital payment solutions”.
This would include the deployment of pseudonymisation, hashing, data encryption, and other “state-of-the-art measures” by the Eurosystem to eliminate the likelihood of transactions being linked back to specific users.
For offline transactions, the report promises users a “cash-like level of privacy”, with payment details only disclosed to the payer and payee.
On this note, the ECB says it has been “investigating the technical tools already available on the market” to facilitate offline transactions, with a focus on account funding processes and fraud checks, having also assessed “other essential aspects of offline digital euro payments, with a view to making them seamless, secure and user-friendly”.
However, the report adds that the implementation of an offline digital euro will ultimately hinge on “the requirements laid down for equipment manufacturers and providers of electronic communication services in the digital euro regulation”.
Holding limits
The ECB has leveraged the progress report to make clear that “digital euro holdings of individuals would not be remunerated and would be subject to holding limits”.
This move, it says, is the result of a commitment to designing a digital euro that “can be widely used as a means of payment while still preserving financial stability and the transmission of monetary policy”.
With this, the report confirms that work on forming a “calibration methodology” has commenced to pinpoint what the exact limits should be, with the ECB bringing together a newly created workstream involving central banks and national authorities.
It says the workstream “has begun to identify the factors that could influence the holding limits calibration”, including a “dialogue and a data collection exercise” as a pre-emptive measure for the assessment.
“The first engagements have already taken place, with more to follow in the coming months given the relevance of this work for all the stakeholders involved in the digital euro project,” the report states, adding that details on the exact holding limits are likely to be defined “closer to the time of issuance”.
Cipollone comments that the ECB will “continue engaging with all stakeholders, including the European public, to ensure that it is successful and benefits us all”, describing the initiative’s development as “a common European endeavour”.
The report concludes by affirming that the central bank “will only decide on the possible issuance of a digital euro once the relevant legislation has been adopted”, with its effort to establish a suitable legal framework to prove “essential for the concrete function of the digital euro”.
