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ECB to launch digital euro by 2028

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By Imelda Cotton - 
ECB European Central Bank launch digital euro 2028

The European Central Bank (ECB) has moved forward in its plan to launch a digital version of the euro which would allow the 20 countries which share the currency to make electronic payments securely and free of charge.

The bank said it would start a two-year “preparation phase” for the proposed new legal tender next month during which it would finalise rules, choose private sector partners and conduct further tests.

The work could pave the way for a possible future issuance of a digital currency however a formal decision will not be made until relevant legislation has been completed.

Investigation phase

The preparation phase follows completion of the investigation phase launched by Eurosystem in October 2021 to explore the design and distribution models for a digital euro.

The Eurosystem is the central banking system of Europe, comprising the ECB and the national central banks of European Union member states that use the same currency.

The investigation found that a digital euro would bring the key features of cash into the digital era, offering privacy and be widely accepted across the region.

It would provide an additional payment (rather than replacement) option to complement cash and current private digital payment solutions, while tackling payment market fragmentation through a pan-euro area digital system.

The ECB’s report said a digital euro would be designed to have the “highest possible level of privacy” and would not store any personal data to directly identify users.

Free and guaranteed

The digital euro would act like any online wallet or bank account except it would be free to use and guaranteed by the ECB.

It would not be a crypto-asset, as those are backed or managed by private companies and not a central institution, which makes them risky and unstable.

“A digital euro would be a user-friendly and inclusive financial instrument, ensuring that everyone can have access to digital payments even without an internet connection, bank account or payment card,” the report said.

“It could be used by anyone, including people with limited financial or digital skills and other vulnerable groups [and] would be designed for use in physical and online payments, as well as for person-to-person transactions.”

Following the investigation phase, the ECB designed a digital euro which would be widely accessible to citizens and businesses through distribution by supervised intermediaries, such as banks.

Logical progression

While the digital euro would not be available as legal tender before 2028, ECB president Christine Lagarde said the concept was a logical progression.

“We need to prepare our currency for the future… while we have not yet decided whether to issue a digital euro, we are getting ready,” she said.

“We envisage a digital euro as a digital form of cash which can be used for all digital payments, co-existing with physical cash, leaving no-one behind.”

Ms Lagarde said the currency would create competition in a payments market currently dominated by US credit card companies.

Exploring digital currencies

According to research by US-based think tank Atlantic Council, more than 130 central banks worldwide are either exploring or preparing to put in place digital currencies as the electronic payments industry grows.

Around 11 countries — including a number in the Caribbean and Nigeria — have already launched central bank digital currencies (or CBDCs), while pilot testing in China has so far reached 260 million people across 200 scenarios from e-commerce to government stimulus payments.

The US Federal Reserve, the Bank of England and the Bank of Canada are among those which have been more cautious about digital currency projects.

China rollout

China has been on the edge of a national rollout of the digital yuan since a planned 2020 launch was derailed by the pandemic.

The nation’s bank is believed to have pressured businesses including McDonalds and Nike to allow customers to use the new currency at last year’s Beijing Winter Olympics.

It has also asked platforms such as Alipay and Tencent to actively promote the digital yuan as part of a pilot program in a number of regions.

At the end of 2021 and despite the reach achieved by the pilot work, the currency had reportedly failed to gain significant traction.

Australia’s stance

In August, Australia’s Reserve Bank confirmed it would not be taking a stance on a CBDC for some years due to “several unresolved issues” which surfaced during a recent pilot project.

The project was run by the bank in collaboration with the Digital Finance Co-operative Research Centre (DFCRC), which is a $180 million program funded by industry partners, universities and the federal government to research opportunities arising from asset digitisation and CBDC use cases.