A second study from the European Central Bank (ECB) on the viability of introducing a digital euro has been released. It is an update on the development report released in September 2022.
This contains details on the operational aspects of a digital Euro, such as the function of intermediaries, the settlement methodology, and the distribution model. In October 2021, the ECB started looking into developing a digital Euro.
It aims to delve into the core issues surrounding the creation and use of a Central Bank Digital Currency (CBDC) for the Eurozone.
The Intermediate Strategy For The Digital Euro
According to the suggestions, the direct-to-central bank concept for the digital Euro should be replaced with a monitored intermediary strategy. All retail obligations, including the equipment and interfaces that permit digital Euro transactions, would be handled by supervised intermediaries.
These intermediaries would provide user-facing services such as opening wallets or accounts, payment methods, onboarding, and offboarding, including know-your-customer (KYC) and anti-money laundering checks.
According to the paper “Eurosystem central banks,” the ECB will handle the settlement, including recordkeeping and verification procedures. Despite having access to client records, supervised intermediaries are not expected to be heavily involved in the “Eurosystem” at the initial stage of the rollout.
However, the researchers have not decided upon the currency’s operational mode—traditional methods, distributed ledger (Blockchain), or a hybrid of both.
Fund Raising And Offering
According to the research, a “seamless financing experience is vital” to maximize the adoption of the digital Euro. Users of the plans can use manual or automatic funding and defunding.
The digital Euro solutions provided by supervised intermediaries would include manual financing and defunding online and offline choices. Even with transactions surpassing user-set automated thresholds, users can still trade the digital Euros thanks to “waterfall” and “reverse waterfall” features.
Nevertheless, a suitable distribution strategy is a crucial component of high adoption. According to researchers, accepting payments in digital Euros should always be possible, regardless of the merchant’s place of origin.
The paper suggests a uniform set of policies, guidelines, and practices for the entire Eurozone to “promote a harmonized end-user payment experience” and make things easier.
In the fall of 2023, the ECB Governing Council will assess the details in the report and decide whether to advance the digital Euro into the implementation phase. It is worth mentioning that CBDC initiatives in India and Nigeria have failed due to a lack of public interest.