The European Central Bank (ECB) is taking a bold step towards embracing the future of digital currencies by allocating a substantial portion of its $1.3 billion contract budget to enable digital euro offline payments. This move signals the ECB’s commitment to keeping pace with the global shift towards central bank digital currencies (CBDCs).
In its quest for providers, the ECB is not just focusing on offline payments; it is casting a wide net to cover various aspects, including risk management, information security, and user applications. A staggering 1.2 billion euros ($1.3 billion) has been earmarked for potential contractors, with over 50% allocated to the development of the crucial offline payments service.
With approximately 100 economies worldwide contemplating the issuance of CBDCs, the European Union, consisting of 27 nations, stands out for its particular interest in embracing the digital era. The ECB’s initiative is a proactive move to prepare for a digital euro, targeting the approximately 340 million people across 20 EU countries who utilise the common currency.
The ECB has been exploring the possibility of a digital euro for several years. In 2023, the EU’s executive arm proposed legislation for the digital currency, emphasising features such as prohibiting interest and large holdings while promising offline payment capabilities right from the launch. Despite the ECB’s insistence that this exploration doesn’t guarantee the issuance of a digital euro, the recent calls for providers suggest a growing sense of obligation.
Last week, the ECB provided an update on the development of a rulebook for the CBDC, underscoring the meticulous approach to this digital transformation. The substantial $1.3 billion budget, while appearing significant, aligns with the ECB’s ambitious expectations for the contracted partners. Jonas Gross, Chairman of the Digital Euro Association, noted that the multi-year contract demands the delivery of a flawless product ready for market implementation.
A noteworthy revelation is that more than half of the budget, a significant 56%, is dedicated to potential providers focusing on the offline component of the CBDC. This emphasises the seriousness of the ECB’s intent to make offline payments a reality. Jonas Gross sees this allocation as an indicator of the complexity surrounding offline functionalities and the need for extensive expertise to navigate these challenges successfully.
Enabling offline payments is a formidable challenge in the implementation of CBDCs. The ECB’s plan involves two digital euros for retail payments, with one exclusively designed for offline use. Gross envisions a single app encompassing both versions, highlighting the potential difficulty in constructing a user-friendly product that seamlessly incorporates these distinct functionalities.
The choice of providers for this monumental task remains an open question. Following criticism in 2022 for selecting U.S. tech giant Amazon for a digital euro e-commerce prototype, Gross suggests the ECB might lean towards traditional finance players with a European presence this time, avoiding potentially controversial choices.
These developments follow the ECB’s shift of its digital euro project to a “preparation phase” in October. This phase involves the development of a comprehensive rulebook and the selection of providers crucial to building the platform. However, the decision to issue a digital euro awaits the finalisation of legislation in the European Parliament, a process facing political headwinds that may impact approval.
The ECB’s substantial investment in enabling digital euro offline payments capabilitie underscores its commitment to navigating the complex landscape of CBDCs, positioning the European Union at the forefront of the digital revolution in global finance.
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