The European Central Bank has chosen to move forward with a digital euro initiative after months of consideration.
In compared to bitcoin, officials say the new version of Europe’s common currency should “guarantee privacy” and allow access to “the safest form of money” at a “negligible” environmental cost.
The European Central Bank’s (ECB) Governing Council took the long-awaited decision on Wednesday to begin the ‘investigation phase of a project to issue a central bank digital currency (CBDC)’.
The stage will last two years, during which time major parts of the digital euro’s architecture and distribution issues will be resolved.
In any case, it will not be a substitute for cash, and no final decision on its issuance has been made.
“It’s been nine months since we released our research on a digital euro,” says the author.
In that time, we’ve undertaken additional research, solicited advice from residents and professionals, and conducted some trials, all of which have yielded positive outcomes.
“As a result of all of this, we have decided to step up a gear and begin the digital euro project,” ECB President Christine Lagarde said during the meeting.
She also stated, “Our effort strives to ensure that citizens and businesses continue to have access to the safest form of money, central bank money, in the digital age.”
By defining the functional architecture of the digital euro, the Eurosystem, which consists of the ECB and the national central banks of the Eurozone’s 19 member states, wants to consider the demands of future users.
The regulator said in a press release that the inquiry phase will include focus groups, prototyping, and conceptual work to evaluate the currency’s use cases.
The ECB will collaborate with the European Parliament and Commission to determine whether modifications to the Union’s legal framework are required to implement the CBDC.
The bank will also analyze the market’s potential impact of a digital euro, while preserving participant privacy and avoiding dangers.
Within the digital euro ecosystem, regulators aim to develop a business model for monitored intermediaries.
The ultimate goal of Europe’s CBDC is to create a “riskless, accessible, and efficient form of digital central bank money” that serves the demands of European residents and businesses, according to the ECB.
At the same time, the CBDC’s architecture must prohibit illegal actions and unfavorable repercussions on the Eurozone’s financial stability and monetary policy.
The inquiry phase will expand on the ECB’s and national central banks’ experiments from the previous months.
They covered a wide range of topics, including the digital euro ledger, privacy and anti-money laundering, circulation limitations, end-user offline access, and device support.
The testing revealed that combining centralized and decentralized features in the digital euro architecture is a viable approach.
“Both the Eurosystem TARGET Instant Payment Settlement (TIPS) and alternatives such as blockchain have been shown capable of processing more than 40,000 transactions per second,” according to the central bank.
The European CBDC’s fundamental infrastructure will be environmentally benign, according to the ECB.
The European Central Bank stressed that the energy consumed to maintain the high transaction volume will be “negligible” in comparison to the electricity required to process transactions for cryptocurrencies such as bitcoin.
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