Research and prototyping exercise confirm feasibility of digital euro

The European Central Bank (ECB) has published two reports on its market research and prototyping exercise, which were both conducted as part of the investigation phase of the digital euro project.

The Eurosystem invited market participants to take part in the market research to gain an understanding of the industry-specific knowledge and the ongoing experience of building potential technical solutions for a digital euro.

The research indicates that there is a sufficiently large pool of European providers that are able to develop digital solutions.

It also suggests that different types of architectural and technological design options are available to build a technical solution for it.

During the period between July 2022 and February 2023, the ECB conducted a prototyping exercise on what paying with a digital euro could look like for different use cases.

The exercise included the integration of five user interfaces developed by different providers for each use case (front-end prototypes) and a settlement system designed and developed by the Eurosystem (back-end prototype).

Different design choices were tested to determine if they could be technically implemented and integrated into the settlement system of the Eurosystem.

The tests concluded that it is possible to smoothly integrate a digital euro into the existing payment landscape, while still leaving scope for the market to use innovative features and technologies when distributing it.

The findings also confirm that a digital euro could, in principle, work online and offline using different technical designs.

The question remains as to whether an offline solution that fulfils the Eurosystem’s requirements and achieves the necessary scale can be delivered in the short to medium term with the existing technology.

Both the back-end prototype and the front-end prototypes were developed only for research purposes and will not be used further.

Neither the Eurosystem nor the front-end prototype participants processed any personal data during the exercise.

The digital euro project was launched in October 2021, and the Governing Council of the ECB will decide in autumn 2023 whether to proceed with a preparation phase to develop and test the digital euro.

If the Governing Council opts to go ahead with a preparation phase, this does not necessarily mean that it will issue a digital euro. The Governing Council will take a dedicated decision on whether to issue a digital euro at a later stage.

The findings of these reports will feed into both the conclusions of the investigation phase and the potential next steps.