24 June 2024
- ECB develops strict data protection standards to bring digital online and offline payments as close as possible to cash transactions
- ECB begins developing a method to calibrate holding limits for the digital euro
- ECB continues to provide technical input for legislative discussions with European co-legislators
The European Central Bank (ECB) today published its first progress report on the preparatory phase for the digital euro. The phase was launched on 1 November 2023 with the aim of laying the groundwork for the possible issuance of a digital euro.
The report outlines progress on key design aspects of the digital euro and planned next steps for the project.
Data protection for the digital euro
The digital euro is also equipped with offline functionality, offering users a cash-like level of privacy when making payments in shops and between individuals. For offline payments, personal transaction data is known only to the payer and the payee and is not shared with payment service providers, the Eurosystem or providers of supporting services.
In recent months, the ECB has agreed on the technical features needed to ensure that online transactions in the digital euro offer even higher data protection standards than current digital payment solutions, while ensuring robust end-user protection against fraud. The Eurosystem would use state-of-the-art measures such as pseudonymisation, hashing and data encryption to ensure that it cannot directly link transactions in the digital euro to specific users.
Under current practice, payment service providers would only have access to the personal data necessary to comply with EU law, such as anti-money laundering rules. To use data for commercial purposes, payment service providers would need the explicit consent of users. As the issuer and provider of the payment infrastructure for a digital euro, the ECB is supervised by independent data protection authorities that monitor compliance with the European Union General Data Protection Regulation (EUDPR) and the General Data Protection Regulation (GDPR).
An offline digital euro
The Eurosystem is currently developing an offline functionality that would allow digital euro users to pay even without an internet connection, after pre-loading their digital euro account via the internet or an ATM. Payments would be made directly between the offline devices – such as mobile phones or payment cards – of the users involved in the transaction, without any third party involvement.
The ECB is examining the technical tools already available on the market to enable offline transactions in digital euros to be carried out directly on end-users’ devices. It has also assessed other key aspects of offline payments in digital euros to make them seamless, secure and user-friendly.
The ECB’s technical work focused in particular on delivery aspects and how offline euro wallets can be funded and withdrawn, including conducting anti-money laundering and counterfeiting checks. For offline payments, users could use their mobile devices, while the Eurosystem is also exploring the possible use of battery-powered smart cards or non-battery-powered smart cards using a bridging device.[1] communicate.
The effective implementation of an offline digital euro on mobile devices will ultimately depend on the requirements for device manufacturers and electronic communications service providers set out in the Digital Euro Regulation.[2]
Holding limits for the digital euro
The design of a digital euro must ensure that it can be widely used as a means of payment, while at the same time preserving financial stability and the transmission of monetary policy. For this reason, digital euro holdings by private individuals would not be remunerated and would be subject to holding limits.[3] In addition, users would have the option to link their digital euro wallet to a commercial bank account, allowing them to make payments through their digital euro wallet without having to top it up with funds in advance.
The ECB has started work on a calibration methodology for setting the holding limits, which requires a comprehensive monetary and economic assessment.[4] A newly created working group, comprising experts from the Eurosystem national central banks and national competent authorities, has started to identify the factors that could influence the calibration of the holding limits. In this context, the ECB has launched a dialogue and a data collection exercise to obtain the detailed data needed for the assessment. As this is a joint endeavour, the ECB is regularly engaging with co-legislators and market participants (consumers, merchants and financial institutions) to keep them informed of the technical work and to collect feedback. The first discussions have already taken place and, given the relevance of this work for all stakeholders involved in the digital euro project, more will follow in the coming months.
The findings from this initial assessment will feed into the development of the calibration methodology. The exact holding limits would be based on this methodology and would be determined closer to the time of issuance, taking into account prevailing economic conditions.
Rules and tendering procedures for the digital euro
The Digital Euro Rulebook Development Group has completed an interim review of the first draft of the rulebook, which sets out the rules and procedures for standardising digital euro payments across the euro area. The group is expected to present an updated version of the Digital Euro Rulebook by the end of 2024, including the remaining chapters focusing on user identification and authentication and infrastructure-related requirements.
In parallel, the ECB published five calls for tenders aimed at concluding framework contracts with suitable external suppliers for the provision of components of the digital euro and related services. The Eurosystem will now proceed with the selection process by inviting the best-ranked candidates to submit a tender. This process will help to establish the final technical details for the design of a digital euro.
Accompanying the legislative process
In the course of the legislative discussions, the ECB has continued to provide technical expertise to the European institutions involved. To support the ongoing discussions, the ECB has in particular (i) provided technical input to analyse the dynamics of the euro retail payments market, (ii) published a detailed technical analysis of the feasibility and implications of allowing multiple digital euro accounts per user and (iii) carried out additional technical work on a digital euro app to make it highly inclusive and accessible.
“The preparatory phase for the digital euro is progressing well and we support the ongoing democratic debate on the legal framework for the digital euro,” said Executive Board member Piero Cipollone, who chairs the High-Level Task Force on a Digital Euro. “The digital euro is a common European endeavour. Therefore, we will continue to work with all stakeholders, including the European public, to ensure that it is successful and benefits us all.”
The Governing Council will not decide on the possible issuance of a digital euro until the relevant legislation has been adopted, as this legal framework is essential for the concrete functioning of the digital euro.
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