The European Central Bank (ECB) acquisition It is an important step towards implementing a digital euro by allocating part of the $1.3 billion contract budget to enable offline payments for the proposed digital currency. This move signals the ECB’s seriousness about embracing the digital age and competing with private cryptocurrencies.
More than half of the approximately $730 million contract budget was earmarked specifically for the development of offline payment capabilities. The ECB has focused most of its budget on offline payments, soliciting applications from a variety of providers to provide a range of services, including risk management, information security and user applications.
While central banks around the world are exploring central bank digital currencies (CBDCs), the European Union, particularly the 27-nation Eurozone, has shown notable interest in preparing a digital euro. The ECB, which is responsible for overseeing the euro, which is used by about 340 million people in 20 EU countries, has been actively exploring issuing a digital version of the currency. Legislative proposals have been introduced in 2023 that would ban interest and large holdings while promising offline payments from day one.
Despite repeated assurances from ECB officials that work on a digital euro is not a commitment to issue a digital euro, recent demands on providers suggest that legislative commitments are putting pressure on the ECB to implement the proposal. In addition to the call for applications, the ECB recently provided an update on the development of the CBDC rulebook.
A budget of $1.3 billion may seem like a significant sum, but Jonas Gross, president of the Digital Euro Association, points out that significant investments will be needed to meet the expectations set by the ECB. Gross emphasized that the budget was reasonable given the complexities of bringing a complete product to market over several years.
The focus on allocating more than half of the budget to potential providers of CBDC offline components highlights the importance of overcoming obstacles associated with offline payments in CBDC implementation. The ECB plans to introduce two digital euros for retail payments, one designed exclusively for offline use, including offline holdings.
Given the ECB’s past research, which chose Amazon to create an e-commerce prototype for the digital euro in 2022, the choice of service provider remains an open question. Gross suggests that the ECB could opt for more traditional financial players with a presence in Europe.
conclusion:
As the ECB moves the digital euro project into the preparatory phase in October, a final decision on issuing a digital euro will depend on the European Parliament finalizing the bill. But with the proposal facing political backlash, approval is not guaranteed, adding an element of uncertainty to the future of the digital euro.