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The Eurogroup, which brings together ministers in the eurozone, has set out its hopes and wishes for the digital euro project as it enters a pivotal year.
During its latest European Council meeting, the Eurogroup has said that it took stock of the progress of the digital euro project.
At this event, European Central Bank (ECB) president Christine Lagarde presented the design and distribution options that were recently endorsed by the ECB’s governing council, while the European Commission updated ministers on its preparatory work towards a legislative proposal.
“The Eurogroup reaffirms its support for the continued efforts of all European and national institutions involved in the preparatory work for the potential issuance of a digital euro, and encourages a high level of innovation and ambition in exploring its possible design and distribution options,” the ministers said in a statement.
Depending on its design, ministers believe that a digital euro could play a key role in an increasingly digitalised economy by strengthening the “open strategic autonomy” of the European Union.
This reflects the central geopolitical role that the commission and member state governments alike believe is played by payment systems.
As such, the digital euro follows projects such as the European Payments Initiative, which after having to abandon its card issuing plans is now advising the ECB on the digital euro, and legislative packages such as the Markets in Crypto Assets regulation and the Digital Markets Act.
The ministers also said that they believe the digital euro is a good opportunity for fostering financial sector innovation and delivering benefits for citizens, businesses and member states, “while preserving the role of central bank money as an anchor for our monetary system”.
Eurogroup priorities
According to Eurogroup president Paschal Donohue, the latest statement summarises the main discussions that ministers have had on the issue over a period of six different Eurogroup meetings, while summarising the key “political dimensions” of the project.
These issues are at times unsurprising. For example, ministers have insisted it must complement and not replace cash, while privacy also ranks highly.
“To succeed, the digital euro should ensure and maintain users’ trust, for which privacy is a key dimension and a fundamental right,” the ministers state, with the caveat that any digital euro must comply with current financial crime laws.
According to the ministers, a risk-based approach could be followed to allow for more privacy in the case of less risky transactions, which could ensure a wider adoption of the digital euro among citizens with a stronger preference for privacy.
“The Eurogroup also supports the exploration of an offline functionality, which would serve a wider range of use cases, and also contribute to financial inclusion by facilitating the use by citizens in different scenarios,” the statement says.
Offline functionality would bring the digital euro in line with the Chinese central bank digital currency (CBDC) work, as well as Sweden’s plans.
Ministers also talked up the possibility of the digital euro acting as a building block for “the future architecture for state-of-the-art payment solutions”.
To this end, ministers suggest that it could allow for initiating a payment automatically when predefined conditions are met, meaning that users would be able to programme payments.
As money, however, the Eurogroup has said that digital euros should at all times and throughout the euro area be convertible on par with other forms of the euro, such as banknotes and commercial bank deposits, summarising that the digital euro therefore cannot only be a programmable form of money.
Another discussion point for EU ministers has been the regulatory framework.
According to the statement, the European Commission’s intention is to table a legislative proposal in the first half of 2023, which would establish the digital euro and regulate its main features, subject to the decision of the co-legislators.
Meanwhile, the ECB's governing council will review the outcome of the investigation phase in Autumn 2023 and decide on this basis whether to move to a realisation phase.
Last week, the ECB invited market participants to take part in market research to get an overview of options for the technical design of possible digital euro components and services.
This will provide input for the ECB’s implementation plan, which will be a key part of the final report due in Autumn 2023 at the conclusion of the investigation phase.
