Last week, the European Central Bank (ECB) published the fourth status report on the digital euro, outlining a proposed phased rollout of central bank digital currency (CBDC) and presenting the findings of a market research study with possible external providers. among other things.

The report also outlined the principles for a digital clearinghouse model in euros and explained the ongoing work on design and distribution options. The next steps involve a thorough review of last year’s research phase and a decision on whether to move forward with a later development phase of the project.

Phased CBDC Rollout

At its initial launch, the digital euro would only be available for person-to-person (P2P) and e-commerce payments to “build network effects and encourage greater uptake,” according to the report. Research has shown that P2P payments are highly appreciated among European users and are also technically easy to implement, while the e-commerce use case would allow consumers to use central bank money for their online purchases.

A second version would implement point-of-sale payments in retail stores to give merchants enough time to adapt their payment terminals and physical infrastructure. This phased approach should help mitigate execution risks and minimize delays (which we have seen in other countries, such as China), as well as allow the ECB to identify and address challenges more gradually.

Research on European suppliers

The latest status report also shows the results of a market research study launched in January 2023 that aimed to collect data from technology providers on their ability to provide technology for a CBDC. The 29 responses indicated that there is “a sufficiently large group of European providers that are ready to develop digital euro solutions”, with a wide range of architectural and technological design options in twelve technical components. These include settlement, offline features, and fraud detection and prevention.

Additional updates and next steps

Almost two years after the start of the investigation phase, the ECB seems to have decided on several general principles for the digital euro. For example, the compensation model will largely follow director Fabio Panetta’s March proposal, which includes free basic usage by individuals and financial incentives to distribute payment service providers (PSPs).

The report also provides additional updates on portability, fraud detection and prevention, and digital financial inclusion, in line with the principles set out in the previous reports from September 2022, December 2022, and April 2023.

In the meantime, a digital euro rulebook is still being worked out with relevant stakeholders, with no expected timetable for a preliminary publication.

After the summer, the Governing Council will review its research phase and decide whether to move to a development/test phase of the project. However, this does not constitute a final release decision.