European Central Bank Completes Digital Euro Prototypes

As part of the exploratory phase of its digital euro initiative, the European Central Bank (ECB), which functions as the central bank of the European Union, has published two reports detailing the institution's market research and prototype development activities.

The Eurosystem, comprising the ECB and the national central banks of eurozone countries, invited market participants to engage in the market research process. The objective was to gain insights into industry-specific knowledge and the ongoing experience of constructing potential technical solutions for a digital euro.

The research indicates the existence of a sufficiently large pool of European providers capable of developing digital euro solutions. It also suggests the availability of various architectural and technological design options for constructing a technical solution for a digital euro," stated the bank, headquartered in Frankfurt.

From July 2022 to February 2023, the ECB conducted a prototype exercise to explore the user experience of transacting with a digital euro across different use cases. The exercise involved integrating five user interfaces developed by multiple providers for each use case (front-end prototypes), along with a settlement system designed and developed by the Eurosystem (back-end prototype).

Different design choices were tested to determine their feasibility for technical implementation and integration into the Eurosystem's settlement framework, as mentioned in the statement.

"The tests concluded that it is feasible to seamlessly integrate a digital euro into the existing payment landscape, while still allowing room for the market to incorporate innovative features and technologies in the distribution of a digital euro. The findings also confirm that a digital euro could potentially operate both online and offline, employing different technical designs," stated the ECB.

However, the bank noted that the question remains whether an offline solution that meets the Eurosystem's requirements and achieves the necessary scalability can be realized in the short to medium term using existing technology.

Upcoming decision

The European Union launched its digital euro project in October 2021. The ECB's Governing Council is expected to decide in autumn 2023 whether to proceed with a preparation phase for the development and testing of the central bank digital currency (CBDC) designed for the EU.

"If the Governing Council chooses to move forward with a preparation phase, it does not necessarily imply the issuance of a digital euro. A dedicated decision on whether to issue a digital euro will be made at a later stage by the Governing Council," clarified the bank.