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(Kitco News) - The European Central Bank (ECB) has released a pair of reports detailing the bank's market research and prototyping exercise for the digital euro, which have confirmed the feasibility of technical solutions and user interfaces recommended for the bloc’s central bank digital currency (CBDC).
In January, the Eurosystem invited market participants to take part in market research to help the ECB 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 euro solutions,” the ECB wrote in an announcement. “It also suggests that different types of architectural and technological design options are available to build a technical solution for a digital euro.”
A prototyping exercise that explored different use cases for digital euro payments was conducted from July 2022 to February 2023. The trial 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).
These prototypes were developed specifically for market research purposes and will not be used in the future. Neither the Eurosystem nor the front-end prototype participants processed any personal data during the exercise.
“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 a digital euro,” the ECB said. “The findings also confirm that a digital euro could, in principle, work online and offline using different technical designs.”
The market research covered 12 different components that would enable the issuance and redemption of digital euro, the initiation, processing and settlement of transactions, the management and protection of user access and user data, and all necessary interfaces between digital euro components and with digital euro users.
These components include “Settlement, Dedicated Cash Account (DCA) Management, Reference Data Management, Data Warehouse, Offline Solution, Access Gateway, Standalone App, Integrated Banking App Software Development Kit (SDK), Proxy Lookup, Onboarding Repository, Dispute Management, and Fraud Detection and Prevention.”
“Each component could be developed and operated either by market actors or in-house by one or more Eurosystem central banks,” the ECB said.
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With the insights gleaned from the market research, “the Eurosystem has been able to broaden its understanding of the wide range of approaches and potential technical solutions to the challenges of developing a digital euro successfully should the ECB Governing Council decide to continue the work on the project,” the ECB said. “The Eurosystem is reassured that there is a sufficient pool of European providers able to tackle the challenge of developing digital euro solutions.”
The main question that remains now is whether an offline solution that fulfills the Eurosystem’s requirements and achieves the necessary scale can be delivered in the short to medium term using the existing technology.
The Governing Council of the ECB will review the findings of these reports and decide this coming autumn 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 ECB said. “The Governing Council will take a dedicated decision on whether to issue a digital euro at a later stage.”
