June 24, 2024
- The ECB proposes high privacy standards to make online and offline digital payments as close as possible to cash transactions
- The ECB has started work on a draft methodology for calibrating digital limits for euro holdings
- The ECB continues to provide technical input to legislative discussions with European co-legislators
The European Central Bank (ECB) today published its first progress report on the digital euro preparation phase, which started on 1 November 2023 to lay the groundwork for a potential digital euro issue.
The report outlines the progress made on key aspects of the digital euro design and the envisaged next steps for the project.
The privacy of the digital euro
The digital euro proposal includes offline functionality that would offer users a cash-like level of privacy for payments in physical stores and between individuals. With an offline payment, the personal details of the transaction would only be known to the payer and the payee and would not be shared with payment service providers, the Eurosystem or any support service providers.
In recent months, the ECB has agreed on the technical elements required to guarantee that online digital transactions in euros will provide even higher privacy standards than current digital payment solutions, while providing robust protection for end-users against fraud. The Eurosystem would use state-of-the-art measures, including pseudonymisation, hashing and data encryption, to ensure that it is unable to directly link digital euro transactions to specific users.
In line with current practice, payment service providers would only have access to personal data that is necessary to ensure compliance with EU legislation, such as anti-money laundering regulations. In order to use the data for commercial purposes, the payment service providers would need the express consent of the users. As the issuer and provider of payment infrastructure for the digital euro, the ECB will be under the supervision of independent data protection authorities who will monitor its compliance with the European Union Data Protection Regulation (EUDPR) and the General Data Protection Regulation (GDPR).
Offline digital euro
The Eurosystem is developing an offline feature that would allow digital euro users to pay without an internet connection after pre-funding their digital euro account via the internet or an ATM. Payments would take place directly between offline devices – such as mobile phones or payment cards – belonging to the users involved in the transaction, without having to rely on third parties.
The ECB is investigating technical tools already available on the market that could enable offline digital euro transactions to be settled directly on end-user devices. It also assessed other critical aspects of offline digital payments in euros to ensure they are seamless, secure and user-friendly.
In particular, the ECB’s technical work focused on considerations for the delivery and funding and settlement of offline digital euro wallets, including how to implement anti-money laundering and anti-counterfeiting controls. For offline payments, users could use their mobile devices, while the Eurosystem is also exploring the potential use of battery-powered smart cards or non-powered smart cards that use bridging devices.[1] communicate.
The effective implementation of the offline digital euro on mobile devices will ultimately depend on the requirements set for device manufacturers and electronic communications service providers in the Digital Euro Regulation.[2]
Digital euro holding limits
The design of the digital euro must ensure that it can be widely used as a means of payment while maintaining financial stability and the transmission of monetary policy. Because of this, holdings of digital euros by individuals would not be rewarded and would be subject to holding limits.[3] In addition, users would be able to link their digital euro wallet to a commercial bank account, allowing them to make payments through the digital euro wallet without having to pre-load it with funds.
The ECB has started work on a calibration methodology for defining holding limits, which includes a comprehensive monetary and economic assessment.[4] A newly created work stream involving experts from Eurosystem NCBs and national competent authorities has begun to identify factors that could affect the calibration of holding limits. In this context, the ECB has launched a dialogue and data collection in order to obtain the detailed data needed to carry out the assessment. As this is a joint effort, the ECB holds regular exchanges with co-legislators and market participants (consumers, traders and financial institutions) to inform them of the technical work and obtain feedback. The first commitments have already taken place and more will follow in the coming months given the importance of this work for all stakeholders involved in the digital euro project.
The findings from this initial assessment will be used in the design of the calibration methodology. Exact holding limits would be based on this methodology and would be defined closer to the time of issue, taking into account the prevailing economic conditions.
Digital rules for the euro and the tender process
The Digital Rules Development Group for the Euro has completed an interim review of the first draft rules, which set out the rules and procedures for standardizing digital payments in euros across the euro area. The group is expected to deliver an updated version of the digital euro rulebook by the end of 2024, including the chapters under discussion that focus on user identification and authentication as well as infrastructure-related requirements.
In parallel, the ECB issued five calls for applications aimed at concluding framework agreements with suitable external providers for the provision of digital euro components and related services. The Eurosystem will now continue the tender process by inviting the highest rated respondents to tender. This process will help decide the final technical details of the digital euro design.
Supporting the legislative process
As legislative negotiations develop, the ECB continues to provide technical expertise to the European institutions concerned. To support the ongoing discussions, the ECB in particular i) provided technical input with regard to the analysis of the dynamics of the retail payments market in euros; ii) published an in-depth technical analysis of the feasibility and implications of allowing multiple digital euro accounts per user and iii) carried out further technical work on the digital euro application to make it highly inclusive and accessible.
“The preparation phase of the digital euro is progressing well and we support the continued democratic debate on the legal framework for the digital euro,” said Executive Board member Piero Cipollone, who chairs the High Level Working Group on the Digital Euro. “The digital euro is a joint European effort. That is why we will continue to engage with all stakeholders, including the European public, to ensure that it is successful and benefits us all.”
The ECB Governing Council will decide on the eventual issuance of the digital euro only after the adoption of the relevant legislation, as this legal framework is necessary for the specific function of the digital euro.
Contact for media inquiries Georgina Garriga Sanchezphone: +49 152 2255 2184.