Fintech
ECB presents progress report on preparations for the digital euro
The European Central Bank (ECB) has published its first progress report on plans to launch a digital euro.
The Governing Council of the ECB has approved the launch of a preparatory phase from 2023 to test whether the production of a digital euro is feasible, following the launch of an initial investigation phase on the digital euro in October 2021.
The preparation phase will continue until 2025, when the ECB will decide whether to move forward with its digital euro plans. Its newly published report details its current progress.
Privacy is an integral part of the Digital Euro project
Its first mission was to ensure that any potential Digital Euro guarantees user privacy in line with a “privacy by design” approach. Its design will include offline features that offer users a cash-like level of privacy, where only the payer and payee will know the personal details of the transaction.
Offline functionality has additional benefits. As long as a user has pre-funded an account, transactions can still be completed when Internet access is not possible.
The ECB went so far as to say that, for any digital transaction, the issuer and payment infrastructure provider would not be able to directly link transactions to specific individuals.
To achieve this goal, the ECB has explored pseudonymisation, hashing and encryption of messages exchanged with and between PSPs.
Data exchanged between PSPs and the Eurosystem would also be segregated. As a result, the Eurosystem would not be able to directly identify end users or link any of the data it processes to an identified end user.
As for the PSPs themselves, they would have access to online digital transactions in euros only to the extent necessary to comply with relevant EU legislation, including anti-money laundering regulations.
The ECB has said it will also produce a “rulebook” on the digital euro. A Rulebook Development Committee (RDC) has been established to define the role and requirements of all actors involved in a digital euro ecosystem.
The initial draft of the regulation covers (i) the functional and operational models for a digital euro, including end-to-end flows that elaborate how all use cases and services would work; (ii) the technical blueprint requirements describing the architecture and high-level standards that should be considered for a potential digital euro; and (iii) an initial version of the membership model that defines the rights and obligations of the system subscribers according to the draft legislation.
The ECB is also seeking the collaboration of suppliers for the components of the digital euro, identifying five entities to help it provide the technology needed to create a future-proof and cyber-resilient environment.