The European Central Bank (ECB) has published the latest status report on the work of the digital euro, following an earlier update in September. A future central bank retail digital currency (CBDC) will be intermediated so that the central bank does not have to manage consumer relationships directly. The report highlights the division of roles between the ‘supervised intermediaries’ or commercial banks and the central banks of the Eurosystem.

The Governing Council of the European Union will make a final decision on whether to issue a digital euro at the end of next year.

division of roles

Like physical cash, the digital euro will be the direct responsibility of the Eurosystem central banks. Also similar to cash, banks will distribute the digital euro and carry out anti-money laundering checks.

Unlike cash, however, the Eurosystem central banks will be solely responsible for the settlement of all online transactions. That includes checking that the payer has sufficient funds in their wallet and recording the money transfer.

Even if the central bank does the settlement, it will not have access to customer details, such as their total holdings or payment patterns.

The ECB stated that it could use distributed ledger technology (DLT), conventional technology, or a combination for settlement. It depends on the functionality.

Commercial banks will validate customer payments (pre-settlement) and have access to the golden copy of transactions made by their customers (post-settlement).

All consumer-facing activities are the responsibility of intermediaries, such as helping users fund and withdraw funds from their digital euro wallets. This will also involve automated movements between bank accounts and digital euros. This will happen if the client’s digital euro holdings exceed the maximum allowed limit or if the client initiates a payment with insufficient funds in their wallet. In the latter case, the user may choose to abandon the payment.

Banks have to support this financing and definancing 24 hours a day.

Other ECB work

The ECB plans to develop a regulation that will govern the participation of intermediaries in the digital euro. Christian Schäfer was appointed earlier this month to manage the rulebook scheme.

As previously reported, the bank is working with five vendors to see how the UI prototypes could integrate with its backend.

He also shared details about the current token-based design these providers have integrated with.

In addition, the ECB plans to contact technology providers early in the new year to see what solutions are available.