Digital Euro Offline Use: The European Central Bank Steps Up

• Digital Euro Development: European Central Bank Calls for Applications
• ECB's Search for Providers
• Interest in Central Bank Digital Currency (CBDC)
• Plans for Digital Euro Not a Commitment, Says ECB
• Offline Payments a Major Component of CBDC
• Provider Selection

Digital Euro Development: European Central Bank Calls for Applications

The European Central Bank (ECB) recently made five calls for applications from providers capable of creating services surrounding a potential digital euro. More than half of the $1.3 billion contract budget has been allocated for offline payments development.

ECB's Search for Providers

The ECB has earmarked a significant portion of its resources to contractors capable of enabling offline payments for a retail digital euro. The search for providers includes a range of features such as risk management, information security, and a user application. As much as 1.2 billion euros ($1.3 billion) could be allocated to prospective contractors, with more than half intended for the offline payments service.

Interest in Central Bank Digital Currency (CBDC)

Nearly 100 economies worldwide are considering issuing a central bank digital currency (CBDC) as a strategy to step into the digital age and compete with private cryptocurrencies. The 27-nation European Union is exhibiting significant interest in preparing for a CBDC amongst major jurisdictions.

In recent years, the ECB has been considering issuing a digital version of the euro, a currency used by approximately 340 million people in 20 EU countries. The bloc's executive arm even proposed legislation for the digital currency in 2023, promising offline payments from the outset and outlawing interest and large holdings.

Plans for Digital Euro Not a Commitment, Says ECB

Despite the ECB officials consistently stating that work on a digital euro does not necessarily mean they will issue one, the calls for providers suggest that legislative proposals could be pressurizing its delivery. Alongside the application calls, the bank also published an update on the development of a rulebook for the CBDC last week.

Offline Payments a Major Component of CBDC

The ECB has pledged as much as 56% of its budget to potential providers of the offline aspect of the CBDC. This emphasizes the seriousness of the bank's intent and suggests that a substantial amount of expertise from vendors will be required to realize this.

Overcoming the hurdle of enabling offline payments is considered a significant challenge in implementing CBDCs. The ECB's plans include two digital euros for retail payments, one of which will be exclusively for offline use, with holdings also kept offline. Building a user-friendly product that enables both versions may present a substantial challenge.

Provider Selection

It is still uncertain who the ECB will select to build these services. The ECB has faced criticism in the past, from EU lawmakers, for choosing U.S. tech giant Amazon to create an e-commerce prototype for the digital euro. As a result, the ECB may lean towards more traditional finance players with a presence in Europe.

The ECB transitioned its digital euro project into a preparation phase in October to develop a rulebook and choose providers to assist in building the platform. Following the finalization of legislation in the European Parliament, a decision on issuing a digital euro will be made. However, with proposals facing political resistance, approval is not guaranteed.

Edited by Jonathan Stoker