ECB Releases Digital Euro Preparation Report

The European Central Bank (ECB) has published its first progress report relating to plans to launch a Digital Euro. 

The Government Council of the ECB approved the launch of a preparation phase beginning in 2023, to see if the production of a Digital Euro was feasible after an initial Digital Euro investigation phase was launched in October 2021.

The preparation phase will continue until 2025 when the ECB will decide whether to press ahead with its Digital Euro plans. Its newly released report details its current progress. 

Privacy ‘integral’ to Digital Euro project

Its first mission has been to ensure any prospective Digital Euro guarantees user privacy in line with a ‘privacy by design’ approach. Its design will include offline functionality which offers users a cash-like level of privacy, where only the payer and the payee would know the personal transaction details.

The offline functionality has additional perks. As long as a user has pre-funded an account, transactions can still be completed when internet access is not possible. 

The ECB has gone so far as to say, that with any digital transaction – the issuer and payment infrastructure provider would not be able to directly link transactions to specific individuals.

To achieve this, the ECB has been exploring pseudonymisation, hashing and encryption of messages exchanged with and between PSPs.

The 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. 

And, for PSPs themselves, they would only have access to online digital euro transactions at an extent necessary for them to comply with relevant EU law, including AML regulations. 

The ECB has said it will also be producing a Digital Euro ‘rulebook’. A Rulebook Development Committee (RDC) has been established to define the role and requirements of all actors involved in a digital euro ecosystem.

Its initial rulebook draft covers (i) the functional and operational models for a digital euro, including the end-to-end flows elaborating how all use cases and services would function; (ii) the technical scheme requirements depicting the high-level architecture and standards which should be considered for a potential digital euro landscape; and (iii) an initial version of the adherence model setting out the rights and obligations of scheme members per the draft legislation.

The ECB is also calling for providers for Digital Euro components, with calls out for five respondents to help it deliver the technology needed to create a cyber-resilient and future-proof environment.

ECB: Is the road to a Digital Euro the right one? 

While the intentions of the ECB in their roadmap to a Digital Euro are made with the public’s privacy and security needs in mind, has it got it all right? 

We speak to Jorge Lesmes, Senior Director & Client Partner of Banking at NTT DATA UK&I, who comments on the ECB’s decision to implement a practical roadmap with a clear and precise timeline. 

However, for Jorge, the roadmap is currently “missing a few elements”.

“Looking at what could prevent a CBDC from being launched in the next five years, the maturity of the technology is certainly not a factor. Instead, the blockers lie in getting regulation right and determining how the digital currency will be used by end clients in the high street,” he says. 

“Therefore, whilst the technology is there to make it happen, regulation and widespread adoption are challenges that are yet to be addressed.”

Jorge believes a comprehensive strategy must address the interoperability of a Digital Euro with existing financial systems, offering clear guidelines for regulatory compliance across borders. 

“These factors are essential for gaining widespread acceptance and ensuring the Digital Euro’s seamless integration into the financial ecosystem,” he continues, something he believes the ECB has not yet adequately addressed.

That isn’t to say future updates will not address this, of course. 

He does commend its ‘privacy by design’ approach, after all, saying it “ensures that user privacy is integral from the start, embedding privacy features into the digital euro's architecture rather than treating it as an add-on”.

The Digital Euro: Lessons for the UK?

The rigorous process the ECB has implemented can provide valuable lessons for the UK’s approach to rolling out CBDCs, according to Jorge.

“By focusing on privacy, security, and user accessibility, the UK could pave the way for its own Digital Pound, potentially by 2030,” he says.

“The UK’s fintech sector is highly innovative and well-positioned to lead in digital currency development, but it must commit to a clear regulatory framework and transparent operational models to succeed. 

“If the UK adopts these principles, we could see a British stablecoin that balances innovation with security, making digital currency a reality for everyday transactions.”

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