ECB publishes first progress report on CBDC development

The European Central Bank (ECB) has recently published its first progress report on the development of a central bank digital currency (CBDC). This update, released on June 24, highlights the ECB’s focus on creating a secure, private, and efficient digital payment system.

In the report, the ECB emphasizes its commitment to upholding the highest privacy standards for online and offline digital euro transactions. Measures such as pseudonymization, hashing functions, and encryption features are highlighted as crucial in protecting users’ privacy and preventing tracking of their transactions. The aim is to make digital payments as private as cash transactions, offering a level of anonymity currently lacking in most digital payment solutions.

For offline transactions, the personal details of the payer and payee will only be known to them, without involvement from payment service providers or the Eurosystem. This ensures that users can enjoy the same level of privacy as with physical cash. Online transactions, on the other hand, will be subjected to even higher privacy standards, with advanced technologies in place to prevent direct linkage to specific users.

The report also highlights the ECB’s plans for offline functionality of the digital euro, enabling users to make payments without an internet connection. This feature would facilitate direct transactions between offline devices such as mobile phones or payment cards. The ECB is exploring the use of battery-powered smart cards or non-powered smart cards that communicate through a bridge device.

To ensure compliance with data protection regulations, the ECB, as the issuer and payment infrastructure provider of the digital euro, will be supervised by independent data protection authorities. Offline digital euro wallets will have funding and defunding capabilities, and anti-money laundering and forgery checks will be implemented.

In terms of financial stability and effective monetary policy transmission, the ECB is developing a methodology for calibrating digital euro holding limits. Individual digital euro holdings will not be remunerated and will be subject to these holding limits. Users will be able to link their digital euro wallets to commercial bank accounts, allowing them to make payments without pre-loading their wallets.

As legislative discussions progress, the ECB will provide technical expertise to support these discussions. This includes analyzing the dynamics in the euro retail payments market, exploring the feasibility of multiple digital euro accounts per user, and developing a highly inclusive and accessible digital euro app.

Overall, the ECB is committed to the success of the digital euro project as a common European endeavor. It remains engaged with all stakeholders and will continue to prioritize the development of a secure and private digital payment system.

Source: ECB