4.1 Development of a digital euro continued in 2022

A central bank digital currency for the euro area – a digital euro – is currently at the investigation stage. In 2022, the Eurosystem took a range of decisions on the features of a digital euro, but various aspects still remain undecided.

Although still in the investigation phase, a digital euro in practice would mean that citizens would be able to hold central bank money in digital form, in addition to banknotes.

A digital euro would be a digital form of our single currency, the euro, accessible to all citizens. In other words, the Eurosystem would not be issuing a new currency.

In 2021, the Eurosystem launched an extensive investigation project to establish a concrete form for a digital euro. The decision on whether to issue a digital euro has not yet been taken, however.

Eurosystem aims to ensure payment systems are reliable and efficient in the future too

The task of the Eurosystem is to ensure that payment and financial systems continue to be reliable and efficient in an increasingly digitalised world.

The importance of cash as a payment instrument continued to decrease during the COVID-19 pandemic, and many of today’s electronic payment solutions are dependent on entities located outside Europe.

The aim of a digital euro would therefore be to strengthen the role of the euro area’s central bank money as a monetary anchor and to increase the strategic autonomy of Europe and competition in payment services within the euro area.

Possible issuance of a digital euro would still be years away

A central bank digital currency (CBDC) has in recent years become an important theme in the work of many central bank around the world.  

The Eurosystem has been conducting investigative work on a CBDC since early 2020.

Dozens of experts from the European Central Bank (ECB) and from all the Eurosystem national central banks are participating in the extensive two-year investigation phase, which focuses on the design and feature options of a digital euro.

The most important decision-making body in the project is the High-Level Task Force, where the Bank of Finland is represented by Member of the Board Tuomas Välimäki.

In addition to central bank experts, the project also utilises the input of  other payment and payment flow experts and authorities. In Finland, the national monitoring group for the digital euro project began its work in 2022, led by the Bank of Finland. 

The purpose of the group is to communicate information about progress in the digital euro project and to discuss CBDC issues.

The investigation phase will be completed in autumn 2023, after which the Governing Council of the ECB will decide on the next phase. The possible issuance of a digital euro would, in any event, still be a number of years away.

Investigation phase defines features of a digital euro

In 2022, the Eurosystem took many important decisions on the features of a digital euro.

The investigation phase has confirmed that users of a digital euro would need to be able to use it more or less like current forms of payment, i.e. for payments online, payments at point-of-sale (POS), person-to-person payments and payments for public services. In addition to online payment based on real-time data connections, the project is also seeking a technical solution for an offline payment functionality, i.e. for payments that could be made without an online connection.

The digital euro would be on the Eurosystem’s balance sheet, and Eurosystem central banks would also be responsible for the settlement of online payments. The settlement of offline payments would take place in the device in which the payment was initiated.

A key concern about the issuance of a digital euro relates to the potentially large shifts from bank deposits to a digital euro and the weakening of financial stability. With this in mind, the Eurosystem is looking at constraints on the use of a digital euro, such as an upper limit on digital euro balances, and the option of using interest rates to guide people’s choices. The digital euro should be a means of payment, not a form of investment.

Protection of privacy has been an important topic since the start of the project. Complete anonymity has been ruled out, however, because supervised intermediaries would have to be able to fulfil their obligations regarding AML/CFT (anti-money laundering and combating the financing of terrorism). Protection of privacy would nevertheless have to be sufficiently robust and transaction data would be available to supervised intermediaries only to the extent necessary. The Eurosystem, for its part, would not be able in any way to view transaction data of private individuals.

The Eurosystem has emphasised throughout the investigation phase that the private sector would play an important role in making a digital euro available to citizens. In 2022, a significant decision was taken that the distribution of a digital euro would be based on a payment scheme that specifies common rules, processes and standards.

Aim is not to replace current forms of payment

In Finland as in many other euro area countries, electronic payment instruments have long been used in daily payments. The Eurosystem’s intention is to increase the alternatives for making payments, rather than restrict them; it is not the aim to replace cash or the services provided by banks and payment institutions.

A digital euro could, however, improve access to services and competition, and could contribute to ensuring the payment system can function reliably at all times by providing citizens access to a European payment solution. This would also allow payment flows to be maintained and developed in a way that reflects more closely the views of euro area citizens.